Getting to "yes" in a world of "no"…


You may have seen this already, but a TechCrunch Europe post got me all annoyed today:

The British Prime Minister is expected to announce today that the East of London, which in the last three years has seen a 700% growth in tech companies starting up there, is to become an officially sanctioned startup ‘hub’ for the UK.

Although he will make a speech saying that London will be transformed into a “world-leading technology city to rival Silicon Valley” – a worthy but rather over-optimistic claim – there is some meat here. The government appears to have secured several commitments from companies including Google, Facebook, Intel and McKinsey & Co to invest in the long-term future of the area.

Moreover…

There will be £200 million of equity finance for businesses with high growth potential and £200 million for new Technology and Innovation Centres – one of which could be in the Olympic Park.

£200m does sound like a nice figure (though as always with grandstanding speeches, this will probably turn out to be an aggregate figure for a 20-year investment programme). But by what new mechanism does the government believe it is going to be able to do this? Have all the regional development funds, NESTA, and the London Technology Fund managed to achieve anything to date? No. Why? Because they’re all built on the ten-years-outdated VC model, which means they don’t scale down to the far more modest needs of modern BLAM (“Bootstrapping / Lean / Agile / Minimum Viable Product) startups. If VCs don’t do seed any more, why does anyone think that these sons-of-VCs would be able to?

I think the proper answer lies in empowering angels – that is, setting up regional “angel power-up funds” that look more at the angel than at the investee business per se. As I see it, a sensible template for how this might work is:-

  • Only startups which have genuine scope for scale (i.e. no property, no franchises, no boutique business) qualify
  • Only startups which have the capacity to generate and own their own IP (i.e. only thought leaders, please) qualify
  • Angel & government go in 1:2  (say)
  • BBAA standard contract with fixed price legals through tendering firms
  • £200K investment cap
  • Angel does due diligence
  • Investment entirely via convertible notes
  • No downside protection for angel. The government money is powering-up your investment
  • Upside acceleration for angel (say, because a 10x exit for an angel makes 10x for the government, room for creative tax wins)
  • Angel and investee management must not be directly connected before the investment
  • Flag heavy penalties for fraudulent applications and fraudulent companies

Put this in place quickly, emphasize speed and diligence, limit total investment at this rate to £100m (then the next £100m tranche comes in at a 2:3 ratio, say), and I think you’ve got all the makings of a UK startup tsunami.

Only a politician would worry about building some showboating Olympic science park to house the London startup scene without actually first bothering to help start it up, eh?

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Comments on: "“Angel power-up funds”…" (1)

  1. [...] groups to put in a bid to the newly-£1.4bn Regional Growth Fund, with the idea of setting up an angel power-up fund (hooray!). Just so you know, Round 1 of the Regional Growth Fund closes on 21st January 2011, so [...]

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