Why too much investment in your startup can be as bad as too little

Dan de Sybel discusses with Wired UK about his beliefs that the US is too keen to throw money at tech startups and this makes them complacent, giving the UK an innovative edge.

 

 

When news broke that Oracle had paid $850 million for ad-tech auditor Moat in May, there were eyebrows raised from Shoreditch to Silicon Valley. It’s a lot of money, even in the super-inflated terms of US venture capitalists.

 

It showed the hunger for programmatic technology to reassure digital advertisers they are getting what they pay for. It also sharply illustrates quite how eager Oracle was to buy into trading relationships with Facebook and Google. But, for me, what this deal brings home is the difference in the way US and UK ad-tech companies are financed, and the implications of this for the quality and type of tech innovation that happens as a result.

 

Ad-tech startups in the US are financed at an earlier stage in their business life cycle, and with bigger sums than those in the UK. To a large degree, this is down to the continuing volatility of the global economy. It might look good on the surface, but investors are nervous and ad-tech stocks seem to offer a port in the storm. This means there has been an eagerness on the part of investors to find promising ad-tech startups to furnish and watch as they become the next Moat (they hope). This, at least, is how I see it working in New York and California. In the UK, I find there to be more caution among investors. When companies do attract VC cash, it’s often further down the line, once the business has proved its idea and its ability to sell it.

 

When you have to do without the luxury of that early cash injection you work that much harder to refine your technology. I believe the UK produces more truly innovative technology as a result

 

France was in a similar position to the UK, until the French government wanted a piece of the ad-tech scene. Following generous government grants, there was a flurry of ad-tech start-ups between 2010 and 2012. Yet five years later, almost all of these startups have gone, either into liquidation or swallowed by major French or US tech companies as their funding ran out and their products lacked the continued investment or sustainable business models. This demonstrates a microcosm of the point I’m trying to make: too much funding too early can be just as bad as too little.

 

US investors are so keen to chase the digital sacred cow that in some cases they are backing anything with the ‘programmatic’ or ‘ad-tech’ label on it. The upshot is lots of barely differentiated ideas getting all the way to market – lots of identikit technology that is only varied by the way it is sold to customers.

 

When you have to do without the luxury of that early cash injection you work that much harder to refine your technology and (crucially) the business case. I believe the UK produces more truly innovative technology as a result; going far deeper in terms of data analytics and customisation than most off-the-shelf American digital ad platforms allow. It’s why the UK ad-tech sector is starting to compete at a global level, taking on the US giants of ad-tech in their own market.

But Dan, I can hear you say, are you really suggesting you wouldn’t have liked that fully-funded sales team and the peace of mind of money in the bank? Isn’t this the unmistakable sound of a Brit making the best of adversity through clenched teeth? Of course, there is part of me that would have liked an open-armed American investor to have thrown cash at us in the early days. There’s a reason they’re called angels. But I think, as with many things, it’s about balance.

 

In the US, too much financing too soon is spoiling the market. In the UK, maybe we could do with a bit less caution on the part of the investment community. Somewhere between these two poles hovers the perfect conditions for a start-up. We can but dream…

 

Read the full article here.