Seeds of entrepreneurship - Nothing ventured

Seed funding for tech start-ups is under pressure as venture capital struggles to survive the recession. In a session on financing entrepreneurship, Axel Polack, General Partner at TVM Capital, warned the European Entrepreneurship Summit in Brussels that in Europe “we are losing investors into venture capital left and right. There is a dramatically shrinking VC industry.”

In Germany, Polack warned, without super angels “it would be really really grim”. Super angels come in at a later stage in the development of a business and back more mature companies with larger amounts, he explained.

While angels and VC funds are the traditional sources of backing for new businesses, Edward Astle, Pro Rector Enterprise at Imperial College London, described a growing new source of early stage funding for university spinouts. “One opportunity for filling the pre-seed – the very early stage – gap is a small number of organisations focused purely on this.”

Astle explained that organisations like IP Group, Imperial Innovations and, more recently, MTI raise money to fill this gap. In all, these three funds have raised well over £300 million to focus purely on this early stage gap. “It shows that the market place can actually deliver part of the solution,” said Astle.

Early stage investment was a recurrent theme of the session. However, for most of the spinouts in the audience, the challenge is to find angel investors who will not only finance their ideas but who can also act as mentors. The people behind the ventures are often young researchers with little businesses experience. They need ‘intelligent money’ from people who can guide them through the creation and growth of a business.

Bill Magill, Associate Director of Science Entrepreneurship at INSEAD, suggested that budding entrepreneurs should seek out local angels. He pointed out that angels are often people who have made money out of starting their own tech businesses. This puts them in a good position to back businesses in other ways than by providing purely financial backing.

The theme of helping young companies to develop also ran through the event. Speakers described new ways in which universities support business development. For example, Magill described how INSEAD brings researchers together with students on its MBA courses. Together they can develop a business idea to the stage where it might appeal to angel investors.

Johan Bruneel, Assistant Professor in the Imperial College Business School in London, described an initiative at Imperial College on Innovation, Entrepreneurship and Design. This brings together engineers, academics, MBA students and designers from the Royal college of Arts. They work together for six months to come up with a fully elaborated business plan. Here, too, there are opportunities to present to angel investors.

Such initiatives work only if researchers are interested in developing their ideas commercially. With experience in Silicon Valley, Magill brought different cultural insights to the session. In Europe, he said, “there is a lack of Silicon Valley type ambition in the research laboratories that I visit”.

In the USA, he explained, go to a university and “if an investor is in the hallway, you are absolutely swamped” by people wanting to talk to you. By contrast, he continued, in Europe the technology is absolutely incredible “as good as anything I see in the States but they have no interest really in carrying it forward”.