With the selling of 3i’s portfolio and much depression in the venture capital industry one has to ask how young companies are going to raise that critical seed capital. Although our portfolio companies are still successful at raising follow-on funding – we have a great x45 leverage that we like to quote as much as possible – it is the seed and pre-A round finance that is proving so difficult to find. With University Challenge Funds almost fully invested, longer and longer timescales till exit, and fewer and fewer early stage VCs it is increasingly left to angels to fill the gap. But as we know, funding a high cost, long timescale technology start-up is not always the right investment for an angel since they will have to follow significantly to avoid being crushed by preference rights in later rounds.
There’s a rainbow outside my window as I write this (seriously!) but unfortunately no pot of gold. Although the University of Cambridge is raising a donated fund to support fledgling companies, not everyone can use this approach. Unless some of the new UK Innovation Investment Fund finds its way to very early stage start-ups, life for the high technology start-up is going to be very difficult indeed.