Prudent investment

16 May 2008

Are London entrepreneurs getting more prudent about their investment opportunities – or just more realistic?

That’s a question that pre-occupied me as I talked to entrepreneurs at the second DrinkTank meet-up in London this week.  Organised by Huddle founder Alastair Mitchell, DrinkTank brings together people from London’s technology start-up community in an informal atmosphere to share ideas, contacts and experiences. I recommend it – it’s a great networking opportunity.

Chatting to the attendees, it was clear that both those who had been through early-stage funding rounds and those who were still looking for their first cash injection are realistic about what to expect. It may be that networks like g2i are starting to engender a more professional “investment readiness” ethos in the London start-up community – or it could be that with so many VCs pulling out of early-stage ventures, companies are starting to appreciate that having a “good idea” on its own isn’t good enough. Whatever the reason, the message seems to be getting through.

Several of the companies I spoke to were putting the investment side of things on hold until they had other fundamentals in place. One entrepreneur said he didn’t want to be railroaded into making a commitment to deliver to VC-style expectations at this stage, having just launched its platform in both the UK and US. While he recognises that his company needs a big cash injection to grow, right now he sees himself still at a pre-VC stage – and is happy to wait a few months to see what happens. In the meantime, the company is self-funded – and judging by the way his team was tucking into the canapés, budgets are tight.

Could it be that this period of financial prudence is actually good for both sides of the investor/investee partnership, forcing entrepreneurs to take a closer look at every part of their proposition? “Dear Prudence” was one of John Lennon’s favourite Beatles’ songs; why shouldn’t it be a watchword for today’s investment readiness programmes?

By David Longworth, Webster Buchanan Research