TECH TALK: Startups may need to rethink their approach as investors become more cautious, says BILL MAGEE
Tech start-up wings have been well and truly clipped. Silicon Valley is warning that deals are taking longer to complete and company valuations will be lower than expected, all because of the two-year coronavirus pandemic and Russia’s invasion of Ukraine.
It means fledgling outfits searching for those magic ingredients, that elusive elixir to land vital funds, are being forced to revise their elevator pitch and business plan. Only then might they stand a chance of catching the eagle eye of an investor.
Multi-million dollar hits already written-off by the big tech boys were the subject of intense discussions at the strictly invitation-only Los Angeles bellwether dealmakers’ gathering “Upfront Summit 2022”.
Staged off Hollywood Boulevard and renowned for its glitz and extravagance, not even principal guest “famous for being famous” party girl heiress Paris Hilton could get the champagne corks popping this time around.
All the talk among more than 1,200 mainline investors, entrepreneurs and business leaders centred on shrinking valuations and longer deal completion timescales. Attendees included Sequoia Capital (market cap over £75 billion), Softbank Capital (over £50bn) and Coinbase (over £25bn).
A tech-heavy Nasdaq stock exchange is already feeling the brunt of investors continuing to sell technology stocks, as oil prices climb even further and prices soar with margins ever-tightening.
What is a cash-hungry fledgling tech outfit to do?
GlobalScot founding member and start-up veteran John A K Lowe says it’s best when talking to potential investors “to keep things pragmatic and open-ended as possible” and not approach a pitch with pre-conceived restrictions.
Lowe has launched, or helped to launch, companies in 40 countries, including the UK’s Camelot National Lottery Group. From coal mining stock in Midlothian’s Loanhead, he is now Arizona-based and retains dual nationality.
A non-executive director on several boards and chair of the International Business Circle global advisory board, he advises companies on inward strategy, market entry and business development.
“Lay out your whole problem because you don’t have any idea how someone like me could help you”.
Quite often a business might say it’s looking for help about a specific thing. “What I’d say is: you don’t know enough about it. You’re looking for help.
“Don’t just say, ‘I’m looking for advice with this..’. More like: “I’ve got this company, and this is what we do.” The process must be all about communicating your problems, objectives and concerns, and let the prospective investor react to that.
“That will help you establish an open and trusted relationship”.
The good news is that, increasingly, there appears to be life beyond Silicon Valley, according to fortune.com where word has “gotten out” and money from all over the globe is pouring into European tech firms.
Sonya Lovieno, head of venture and growth for the UK branch of Silicon Valley Bank, maintains “a new set of investors” are being attracted by more attractive returns.
Over £75 million was raised by start-ups during 2021, more than double 2020, reports Atomico. The venture capital firm claims Europe’s share of early-stage VC funding comes at the expense of the United States.
Euro start-ups captured 13% more of the money available for funding deals under £3.8m, while US start-ups saw that figure decline 20%.
When it comes to successfully landing investors, Calum Paterson, managing partner of Scottish Equity Partners, told boardintelligence.com that good relationships are naturally critical. “You also need the right people”, he said.
Paterson, the former chair of the British Venture Capital Association, says investing in high-growth technology companies is never going to be plain sailing.
Best piece of advice he has ever been given, he does not hesitate to pass on: “Be resilient..it’s all about working hard and treating people fairly.”
There is one constant. Make sure that business plan is copper bottomed.