As 3i leave early stage VC, where next for startups?
February 21 Mike Butcher
Confirming my story last month, 3i is indeed leaving early stage venture capital. The UK-based VC and buyouts house is merging its VC unit with its growth capital unit, confirms PEHub. The new focus for 3i’s venture chief Jo Taylor will be later stage technology, media and telecommunications and healthcare.
The loss of 3i is a blow to European venture capital, though not unexpected in 3i’s case as the move had been rumoured for a while and reflects a wider trend away from early stage amongst bigger venture houses. Although Index Ventures closed a €400m growth fund to invest between €20m and €50m per company, this is aimed at companies too large to fit into early-stage investing models and too small for the larger, private equity firms like 3i. Dow Jones VentureSource reveals that European VCs are focusing on later-stage deals with VCs investing €2.07bn in later rounds in 2007, up 13% from 2006 and the highest amount since 2001.
Now, I don’t now about you but I am a little depressed at this news. Every day I see new UK and Irish startups hungry for early stage seed capital but the hurdles to getting at it now seem higher than ever. Yes, there is more money around than before, but it has become much more focused and the bar has been pushed higher. In some ways this is no bad thing. But I would like to see more evidence that the seed stage and Angel sector is stepping up to the plate. As a result, the whole issue of accessing Angel investment for tech startups is an area I plan to concentrate on in the coming months, so please keep me in touch with your experiences, (on or off the record…).
Comments
February 21st, 2008 at 12:43 pm
The King is dead. Long live the king. Interesting that this one came over the wire, just as I was complaining to our venture capital data provider, Venturesource, how they are missing some of the emerging angel networks that are looking more like VC firms: Samwer bros. Ambient Sound, TAG, Zenstrom’s Atomico.
There’s no doubt that 3i will be a big miss, and given where we are in the cycle there will be less early stage deals from VCs this year, but there’s still a lot of ready and very very smart money there….
February 21st, 2008 at 12:49 pm
Paul Fisher - Good point, and there is also the trend of some VC houses hooking up with some Angels for a seed round in a startup, something I forgot to mention in the post.
February 21st, 2008 at 1:46 pm
I think there is a never ending cycle in the UK where VC firms continuously move later stage, eventually leaving early stage behind, just to be replaced by new entrants. It also seems that balanced funds seem to be unable to keep the early-stage part going.
The key to the European investment scene/ start-up scene will be whether there will be more new entrants coming in, than old ones moving one. I am very excited about the number and quality of new entrants right now, plenty of money around.
February 21st, 2008 at 2:34 pm
thanks for stimulating the conversatioin around the lack of Angel / Early stage funding
Where should potential angel investors go to hook up with startups looking for funding? Although I have been working in the technology sector for some time, the start-up / investor community has always appeared somewhat of a closed circuit with a need for aggressive networking skills in order to gain access or even just peripheral exposure to
the movie industry has for some time been reasonably succesful in raising funds from private investors (supported by tax breaks) - why not technology startups?
February 21st, 2008 at 2:38 pm
I think there is a continual cycle - new players come in low, if they survive and prosper the economics dictate going upstream.
Had a fascinating discussion earleir this week with GLE about the Angel world, how teh UK Government is concerneed about eth “Equity Gap” and its policies, and how Angels are increasingly syndicating to reduce individual risk - looks like it is moving to a point where some form of structured aggregation may be possible.
We were also kicking around the idea of DiY incubators, given the low startup costs in Web 2.0
February 21st, 2008 at 5:48 pm
it would be interesting to have access to rankings of both business angel networks and individual private investors - success rates of business angel networks or incubators seem prone to much obfuscation and general smoke and mirrors
would there be value in a business angel / private investor certification?
February 21st, 2008 at 8:50 pm
Here we go again, Zzzzz! Bottom-line Europe has too few successful ex-entrepreneur angels prepared to invest at sensible ratio levels of equity:investment and the incumbent VC’s, - Index, New Media Spark, Accel, Advent, DFJEsprit, Atlas etc - are very risk averse wanting to use their funds for later stage ventures or the new investment buzz market - greentech.
I cannot believe what I am going to write next but Loic Le Meur was right. If you want to be a successful startup then you have to “Go West”. There is no way he would have got $6m for seesmic a simple video chat service in France/Europe.
In Europe you might be lucky to raise £250-500k for 30% but in the Valley it is more likely to be $5m+ for 30%. Michael Birch (bebo), Nick Denton (Gawker Media), Peter Nixey and many more were all smart enough to work that out.
Ask yourself would twitter, youtube, facebook, flickr, mybloglog, etc ever have got the levels of funding if they had started in Europe.
Like Dick Whittington, entrepreneurs need to go to the Valley where the streets are paved with successful entrepreneur angels and risk savvy VC’s. alternatively stay here in europe and be prepared to flagellate yourself by kissing a lot of Angel/VC ego/arse.
Its very sad and it will not change.
February 22nd, 2008 at 5:06 pm
Since the dotcom bust, institutional TMT sector early stage venture capital -sub £1m- has more or less dissappeared in the UK.
Increasingly, sector dedicated individual investors -in the main former TMT entrepreneurs who have successfully exited from their ventures- who in addition to their cash also add real value are now be considered as the ‘new’ venture capitalists. Some operate as single individuals, some build an organisation around them.
At WirelessMatch we connect both parties. We assist companies to become investment ready and match them to our registered investors -both individual sector dedicated investors as well as the few remaining
TMT ‘venture capital’ and development capital funds, UK-based as well as from abroad.
Please do not hesitate to contact me if we can be of any assistance.
Steven Dotsch
Managing director
WirelessMatch Ltd - UK’s Wireless Funding Network
URL: http://www.WirelessMatch.co.uk
Skype: wirelessdotsch
Em: steven(at)WirelessMatch.co.uk
March 2nd, 2008 at 5:41 am
i created recently a group on facebook:
INTERNET ENTREPRENEURS & INVESTORS : The Group
Type: Business - Investing
Description: Dedicated to the Internet Industry this group is:
1- a platform for entrepreneurs and investors interested in the funding of early stage startups.
2- the ultimate place where entrepreneurs and investors are meeting, connecting.
This group is for you if you are:
1- entrepreneur
2- business angel
3- VC
Link: http://www.facebook.com/group.php?gid=10735256873
March 2nd, 2008 at 5:51 am
for fun : the mascot of the group: Shpigler the Shark
http://www.5min.com/Video/How-to-raise-money-from-VCs-4661