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Angel investors help develop $1bn tech start-ups in Britain
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The explosive success of companies such as Google, Apple, PayPal and Facebook means there is a generation of computer geeks turned multi-millionnaires, who have money to invest and are keen to plough it back into the industry they understand.
Europe, by comparison, has lagged far behind. Funding has been thin on the ground and smaller scale, prompting a succession of Britain's most talented entrepreneurs to pack their bags for West Coast America.
However, that is starting to change and will accelerate rapidly as Europe yields its own success stories, technology investors claim.
A succession of successful exits has spawned the first generation of British technology entrepreneurs to become millionaires en masse on home turf, laying the foundations for a similar sort of ecosystem to the one that has been in operation in the US for 30 years.
Already, British technology start- ups say they have found it easier to get funding, although the sums are undoubtedly smaller than those on offer across the Atlantic.
Octopus Ventures, a London-based venture capital firm, has more than 100 angel investors who each pay an annual subscription fee to access the company's books. A good number are prioritising technology and were involved in the early stages of Skype and LoveFilm, the online movie rental site which acquired by Amazon for £200m at the start of this year.
Alliott Cole, a principal at the firm, says: "We haven't got the equivalent of the PayPal mafia or Google execs yet – the operational guys and the developers who have made loads of money in technology and want to invest it back – but that is starting to change."
At the moment, investors tend to favour digital companies over those that produce hardware, because they require lower capital expenditure for a major roll out, but can still yield sky-high valuations.
Earlier this year, a rash of valuations in excess of $1bn (£614m) had the market warning of a new technology bubble, but some of the deals are already starting to come good.
LinkedIn, the professional networking site, raised eyebrows when it more than doubled its share price to north of $100 on its market debut in May. Last week, it was still hovering around $90 a share as the company announced it had more than doubled sales during the period.
Earlier this year, Microsoft paid $8.5bn for Skype, the voice-over IP business, whilst Groupon, the collective buying website, has been valued at more than $25bn. None of these businesses have particularly high infrastructure costs – no wonder tech entrepreneurs haver their sights set high.
However, Mr Cole warned entrepreneurs against expecting to raise funds of the scale often seen in the US: "People often ask, where are Britain's $1bn [technology] companies, but actually that's not the defined goal. It has to be about returns on capital. If we take on a company at £5m and sell it for £50m, that's awesome. That's ten times your capital."
Jos White, a technology entrepreneur who lives in New York and is a partner at Notion Capital, a Cheltenham-based firm which invests exclusively in cloud computing companies, is targeting European businesses but only if they think on a global scale.
"There is not the same feeling towards entrepreneurship in Europe and in the US. There is a glass ceiling because people think about being the biggest in their own market rather than the biggest full stop.
"They think defensively - 'Don't do anything stupid'," he said.
He said Americans are more forgiving of failure, and also more gung-ho about success, but argues that this is a symptom of the length of time tech companies have been established in the US and it will quickly follow in the UK when there is a more established pattern of success.
"America's ecosystem of technology success and investment is 30 years old, whereas here it is still in its infancy," he says.
He said there is an undersupply of funding in the UK – the number of active venture capital funds in Europe has fallen 63pc to 711 since 1999 – but agrees that this is changing. "With every success, a certain amount is invested back into the ecosytem. At the moment there are probably only 100 really proven entrepreneurs in Europe who have had really successful technology exits.
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