The majority of founders are aiming to sell quickly and for a relatively low price, new research suggests.
VentureFounders and Beauhurst surveyed 100 founders of fast scaling startups of various sizes and ages and across sectors, but including fintech, e-commerce and analytics.
They found that most entrepreneurs are eyeing an exit within two to five years and are prepared to sell for less than £50m. Just one per cent said they expect to sell for more than £1bn. The UK has produced just four per cent of the world’s nearly 200 so-called unicorns, research from HM Treasury shows
Over two-thirds said they were shaping their business to prepare for an exit, but the same proportion also said they thought there was a risk of exiting too early. UK startups were found to have had fewer funding rounds before exiting – either via IPO or a sale – compared to peers in the US, according to data from the British Business Bank.
“People in the UK tend to be a little more reserved. They tend to undersell the business opportunity,” said venture capitalist Simon Calver of BGF Ventures.
“But I think they also tend to focus a little more on the structure and direction of a business. In the US, they focus more on product and vision and how things will change. They tend to be more global in how they think about it.”
“Even though UK founders are more realistic, they do undersell the opportunity,” he added.
Founders and VCs highlighted several factors curbing ambitions, with co-founder of VentureFounders James Codling pointing toward these challenges rather than an innate lack of ambition.
“I think the business community is failing the UK’s entrepreneurs. Despite venture capital in London being ten times higher now than in 2010, the VC world is not willing enough to take on the risk, a lack of competition is driving down standards, and we have failed to create an ecosystem of founders who have experienced success themselves who then go on to nurture the next generation,” he said.
The availability of funding being smaller in the UK than the US was cited by Jon Reynolds, co-founder and chief executive of Swiftkey, which sold to Microsoft for $250m last year, while one anonymous founder noted VC’s short-term outlook.
“I don’t intend on making [this company] a lifestyle business, but I do intend to be doing it for the next ten to twenty years. But my investors don’t have a ten to twenty-year time horizon. I’m quite clear that I’ll do an IPO in 2022 if conditions are right,” they said.
A younger ecosystem with fewer serial entrepreneurs were also mentioned by several of the well-known founders and VCs who were spoken to by the researchers.
Of those surveyed, 43 per cent said they would start a new business, 18 per cent that they would get into venture capital or angel investing, while 15 per cent said they would work somewhere in the startup ecosystem.
Venture capital no longer operates as an efficient market and the UK government ignores that to its peril.” said Codling.
“The Patient Capital Review will hopefully address some of the challenges, but government propping up this industry is not the long-term answer; proving we can build tech companies with value and encouraging institutional investment in venture is the only sustainable solution.”