Tech startups struggle to attract venture capital, report suggests » SMEInsider

Tech startups struggle to attract venture capital, report suggests

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Venture capitalists are ploughing money into big companies, leaving start-ups struggling to secure investment, a new report has highlighted.

The March TechMutiny Insights report features input from a number of firms that had to find other ways to fund their business, because investors were attracted to multi-billion companies rather than early-stage startups.

Night Zookeeper, which produces learning apps, was successful in several tech pitches but founder Joshua Davidson had to resort to using the company’s own resources to launch. Failure to appreciate the business potential was a barrier, he commented.

Davidson said: “We’re now used on five continents. We have 60 kids per school buying this although we’re not experts in book publishing. We see a high level of enthusiasm for our brand. But I don’t think many senior media and entertainment executives that we’ve spoken to have necessarily understood the full potential.”

 

It’s all in the numbers

Another obstacle is that venture capitalists concentrate too much on user numbers when assessing the value of a start-up.

Henrik Eklund, founder of personalised video news service Newstag, said: “The market, including myself, gets swept away by high numbers even though they’re not relevant.

“That leads to a situation where you can have amazing numbers in the billions, which in the old media model would correlate to billions in dollars, but in reality is just an output that will continuously fall in value as the supply in endless.

“It is more valuable to have 1,000 people having a personalised experience than exposing your brand, message, value, to 18 million eyeballs.”

 

Digital surging ahead

The report predicted that digital technology will represent a quarter of global GDP by 2020, meaning that start-ups in this arena should be best placed to attract investment. But the potential for return on investment may be offset by the risky nature of technology.

UK tech entrepreneur Jonathan Chippendale said: “Technology, by nature, is innovative and because it is new, brands don’t have the tools to assess its value.

“Innovation means higher risks, despite the greater rewards. It can take only seconds to move on from something new just because you find it difficult.

“As a tech start-up, you need two to three years of research and development, and no one is going to support that. What investors want is a working prototype that can be inserted immediately into the brands. That can take two to three years without bringing in any revenue.”