Investment is a ladder?
According to research gathered from the UK Government and British Business Bank, well over two thirds of all equity investments in the UK between 2011 and 2017 took place in London, South East and East of England.
What’s more, 80% of the money coming into the UK from overseas investors was concentrated on finding businesses based in the same regions. The same research also shows that the number and frequency of equity investments decreases as the distance from the investor increases. The further away you are from the money, the less likely you are to see any of it.
However, demand for investment is growing fastest in the North, with the highest growth in demand from Yorkshire and Humberside.
There seems to be a funding gap between North and South, but is this really a problem? Or an opportunity.
I have a theory.
Startups in London are totally focused on funding, they have to be, everything is expensive, offices, wages, and it’s all about the raise. In the majority of instances it’s the primary activity of the founders, for the simple reason of it being the primary source of money that comes into the business. The startup game in London consists of selling equity to raise enough money to see the business through to the next, bigger, raise. Repeat until something else happens.
I suspect Northern startups are not typically like this. My feeling is that they are more likely to be aiming for, and achieving, a place in the market as a viable going concern. I’d suggest they are more likely to become good, profitable businesses, less likely to fail. It’s a cyclic effect. Funding is harder to get, therefore founders aim for sustainability, rather than high growth, at least to begin with. And this is a good business practice. Mistakes are more forgiving when made at small scale.
From an equity investors perspective, it’s all about the exit, how do they get their 10X or 100X return? It’s a high odds gamble. Safe bets don’t offer high odds. Northern startups that have survived the initial hatching and stabilised may well be excellent candidates to become high growth scaleups, if provided with the means to fund such growth.
One of the issues is the density of startups and investors, geographically speaking.
It is therefore essential to develop local investment ecosystems that encourage these investors to spend more time, more frequently in the North of England.
Gordon Bateman, the CEO of Leeds based CRSI explained how they have been working closely with investors and high-growth businesses to design and build world-class teams, and do not find it difficult to attract people from across the UK and internationally to businesses in the North.
One of the key things to attract Angel investors is the social aspect of it, the game of it. Angel investors simply like investing in, and being part of, startups and the startup scene. To bring them into contact with startups is more than an administrative process, it has to be enjoyable.
Startups, founders, investors, they’re all part of the same ecosystem, and the important thing is to bring them together in the same room so they can meet each other, face to face, hear stories, listen to pitches, hand out cards, drink a beer or a glass of wine, listen to a speaker share their experiences, and enjoy the company.
It’s a social event, an occasion, and this is what’s been missing in the Northern scene, the events where the players in the game all get together, mingle, make connections, and find those opportunities. For Angel investors, that’s part of the game, chatting with startup founders and secretly trying to find the needle in the haystack that could be the next big thing, right there by the canapes.
It’s a game really, and games need to be fun.
So, I was pleased to meet, and talk with, the team from InvestorLadder, at their recent event in Sheffield. They provided some of the research for this article, and they’re always looking to connect with Angels interested in investing businesses in the North, and open to hear from startups, scaleups, and speakers. For more information about attending their events visit www.investorladder.com, the next one will be held in Leeds on the 19th November. Maybe see you there.