Oceans apart: Research reveals major differences between UK and US start-up funding

British tech start-ups take advantage of angel investors and government grants, as the annual innovation economy report points towards a funding culture noticeably removed from that of the US...

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An overwhelming 61% of UK executives currently working in the technology sector listed angel investors as a source of funding for their business in 2013, compared to only 41% of those based in the US. The sizeable difference between the two economies goes to demonstrate the current good health of the UK economy, according to those at Silicon Valley Bank behind the report: "One source of strength for the UK innovation economy is an increasingly vibrant group of angel investors – private individuals, many of whom have been part of successful innovation economy businesses, who invest in very early stage start-ups."

The more traditional funding route for start-ups, venture capital, was listed by just under half of UK companies – a number almost mirrored in the US. While twice the amount of UK tech start-ups listed state loans or grants as a way to fund their business in 2013, with one in 10 taking advantage of schemes such as that of Start-Up Loans which is currently being delivered across Britain by the likes of Virgin StartUp.

"Overall, UK executives are significantly more accepting of the fundraising environment than they were in 2013, even though the number of venture capital deals closed in the UK dropped slightly from 2012 to 2013 (from 367 to 347),” explains Silicon Valley Bank. “The percentage of executives who say the fundraising environment is extremely challenging dropped by more than half, while the number saying it is not very challenging more than doubled.”

Many expect the numbers of start-ups taking advantage of the UK government’s Start-Up Loans scheme to continue rising, with last week seeing the 20,000th UK small business owner receiving funding through the initiative, taking the total of amount of funding awarded to start-ups past the £100 million mark.

"As part of our long-term economic plan we are backing business and ensuring our budding entrepreneurs get the finance and support they need to kick-start and grow their businesses," commented Prime Minister David Cameron on the news. "Business and enterprise mean more jobs for hard working people; more opportunities for people to break out on their own and be their own boss; and more prosperity and economic security for us all."

Meanwhile, those behind the increased presence of angel investors in start-up circles think that their involvement will also continue to rise in helping young businesses get off the ground. Bill Morrow, Founder and CEO of investment firm Angels Den, is convinced that angel investment will be continually favoured over more risky models such as crowdfunding.

“Crowdfunding is dreadfully fashionable dahling, but few businesses need 400 new shareholders. A model that combines angel funding with the transparency of The Crowd serves all well. Angels love it as they can see the new shareholder agreement upfront and there are no expensive nominee accounts. Business owners love it, as they get the growth capital and people motivated to advise them and mentor them,” explains Morrow. “Putting £400 into a business at a ridiculous valuation might sound like a good idea for the owner, but this money comes at a dreadful price in the medium term. Be aware that not all crowdfunding platforms are the same and beware the hype.”

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