Tanya Combrinck talks to North-East-based venture capitalist Jonathan Gold about what UK technology startups need to know when looking for advice and raising capital
This article first appeared in the January 2012 issue (#223) of .net magazine – the world's best-selling magazine for web designers and developers.
.net: What does a new business need to do to appeal to you as investor?
JG: It’s about communication and having a clear vision of what your business is, not what the product is. A common mistake technology companies make is that they spend too long telling us about how wonderful the product is, but they forget that investors don’t want the product, they want a piece of the business, and all too often that’s what’s missing. So people need to have a better understanding of how the finances of the business are going to work.
The cliché is that venture capitalists are looking for a great innovative product and an investable team, so people forget about decisions such as where to rent offices, or whether to buy or lease a piece of equipment. All those decisions have a financial consequence, and those things are commonly left out.
.net: How should a technology startup in the UK look for incubation?
JG: There’s UK Business Incubation and they will provide things such as office space and reduced rates, and maybe some mentoring and business advice. But high-quality proper incubation, which is the art and science of helping someone with an idea to make a working business, is harder to find.
The important part is getting good advice – and I don’t mean the basic advice about how to put together a business plan and so on. That’s very different from the strategic advice that someone needs to build a technology company that will require significant capital to launch and that has real growth potential.
.net: And that’s what Finance Tree [an organisation co-owned by Jonathan] provides?
JG: Yes. The problem is, some of the government-created institutions, and also some other organisations, purport to give this kind of strategic advice, but in fact they can’t afford to have the right people to do it properly.
There’s a strong difference between someone who calls themselves a business advisor and has been doing that for 30 years, and someone who has run their own business or worked as a venture capital manager and is now offering advice. If someone is offering advice, ask them when they last raised investment for someone, or when they last ran their own company. Those are the people you want advice from.
.net: How can you protect your business ideas and intellectual property when seeking investment?
JG: If you are an FSA-authorised fund management company in this country it’s against the law to divulge any information given in confidence – so entrepreneurs can look up their investor on the Financial Services Authority register and also on the British Venture Capital Association and European Venture Capital Association websites. Business angels are different, they’re independent people and they aren’t bound by those rules.
If you’re patenting a new technology, you don’t need to put the detail of that into an initial business plan, so you have to trust the potential investor with your financial information, but you don’t have to disclose anything that’s potentially patentable until you have actually met with them.
.net: What do you think of the things the government has looked at doing to help technology startups, such as Enterprise Zones, for example?
JG: Technology startups are difficult to help. The best thing the government can do is put an environment in place where companies can grow successfully. So it’s not just about getting investment, it’s about companies having a reasonable understanding of the legislation they need to know about to set themselves up, how red tape affects them and how the tax system works around them.
Enterprise Zones sound like a good idea in theory, but I don’t think they will encourage the creation of more technology companies, they just provide a better working environment for those that are already there. A government has very few levers that it can pull to help the entrepreneurial culture and technology startups, but one of them is certainly to make sure that the tax regime, the investment and regulation regime and the legislative environment that they sit in are as simple and benign as possible.