Survey Finds UK Startups Upbeat On Growth And Revenues, Downbeat On Fundraising

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Startups in the UK are upbeat about the future and usually more profitable (comparatively) than their US counterparts (which tend to focus on growth over revenues). But they find raising Series A money difficult, with 90% of entrepreneurs saying the UK fundraising environment is “challenging”. Those are the findings of a survey commissioned by Silicon Valley Bank (its first such) which has set up operations in the UK. Admittedly the 125 startup executives surveyed is not vast, but it’s likely to be highly targeted given SVB’s historically close relationships with the tech startup ecosystem.

Top line findings of the survey revealed some 83% anticipated positive business conditions in 2013, 39% are looking to raise capital from VCs and Angel investors, but there remains a funding gap between Seed and Series A funding. This latter point chimes with our own anecdotal evidence from TechCrunch sources. It appears Seed funding sources are widespread – it’s now what happens afterwards that’s the issue.

Some 90% of entrepreneurs in the study say the UK fundraising environment is challenging, with over a third blaming a “risk adverse” UK VC ecosystem. Most entrepreneurs surveyed are looking to Angel investors or VCs for their next source of funding (39% for each). Some 14% blamed ‘inexperienced investors’. Companies with fewer than 10 employees are more likely than those with 10 or more employees to look to: Angel investors (49% vs. 12%); the SEIS government tax relief scheme for investors (24% vs. 6%) and the EIS scheme (20% vs. 6%).

Frankly, this feels like an opportunity for US investors to pick up some very competitive deals.

One in five businesses is beating their revenue targets for 2012, and another strong year is predicted for 2013. Some 60% of the respondents say business conditions had improved in 2012 compared to 2011 and 73% met or exceeded revenue targets last year. Of the UK startups questioned nearly half expect their company to be profitable this year. The survey claims “just 26%” of their US counterparts report the same, though sources for that figure were not cited.

More than half (56%) want greater access to government grants and funds designed specifically for startups, while 52% would like to see tax reforms. This latter figure sounds pretty favourable, given recent government changes on tax and funding, such as the SEIS initiative.

Hiring is a key priority for UK based startups. Eighty-seven percent of survey respondents plan to hire in 2013 and 77% say that finding workers with STEM (Science, Technology, Engineering and Maths) skills is “absolutely critical”.

Commenting, Bindi Karia, Vice President at Silicon Valley Bank says while the outlook appears pretty good, “the flipside is that many executives have concerns around how they should fuel the next level of growth, since access to funding and talent are cited as challenges for many startups.”

Joshua March, Co-Founder and CEO of startup business Conversocial (based in Shoreditch at the centre of the so-called TechCity tech cluster) says: “The tech scene in London has evolved dramatically since we started working on Conversocial in 2009. One of the most exciting changes is how much easier it is to hire great developers than just a few years ago. Undertakings like Silicon Milkroundabout and the Tech City initiative, backed by so much government and press support, have turned ‘startups’ into a viable career path.”

Market research firm Koski Research conducted the survey for Silicon Valley Bank in December 2012. For the purposes of the study, UK startups were defined as companies in the innovation sector with less than £25 million in annual revenue and fewer than 100 employees.

Here’s a Summary of the statistics:

A big year:

• 83% anticipate positive business conditions in 2013.
• 18% of respondents say their company exceeded revenue targets in 2012.
• 55% or respondents say revenue met projected targets.
• 66% of respondents say conditions in 2012 were better than in 2011.
• 66% of companies are generating revenue.
• 30% of companies are profitable.
• Of UK start-ups earning revenue, nearly half expect their company to be profitable this year, while just 26% of their US counterparts report the same.

Start-ups are Hiring

• 87% of startups plan to hire new employees in 2013
• 38% of start-up executives say workers with STEM (Science, Technology, Engineering, and Math) skills are critical , and 23% say management, marketing, and other non-STEM skills are most critical.
• Engineering (69%) followed by Marketing-Sales (41%) are the hardest skills to find.

Fundraising environment

• 90% of entrepreneurs in this study say the UK fundraising environment is challenging.
• Over 1/3 of the comments received from respondents think that this is due to a UK VC ecosystem that is not as mature at the US one (risk adverse).
• Most entrepreneurs are looking to Angel investors or VCs for their next source of funding (39% for each).
• 28% cite a risk adverse culture as a barrier to funding; 22% claim that access to capital is in issue; 14% blame ‘inexperienced investors’.
• Companies with fewer than 10 employees are more likely than those with 10 or more employees to look to:
Angel investors (49% vs. 12%)
SEIS (24% vs. 6%)
EIS (20% vs. 6%)

Attitudes to Government support

• Over half of startup executives think that the Government has a role to play in helping the startup sector. • 56% mention that they would like greater access to government grants and funds, designed specifically for startups
• 52% want tax reforms.