Have UK VCs Got Bigger Balls Than US VCs?

What we want in the UK, according to Simon Bond who runs the SETsquared programme for stimulating hi-tec start-ups, is some good exits. The techies have done their stuff building great technology, now the market needs to reward their backers with some juicy IPOs and trade sales.

 

But will it happen? Last year was an awful year for US exits, according to the US National Venture Capital Association, with only six VC-backed companies going public in 2008 compared to 86 in 2007.

 

That made 2008 the worst year for IPOs measured in numbers since 1977 and the worst year since 1979 measures in the amount of IPO cash raised.

 

Those six US IPOs last year raised a collective $470 million compared to $10 billion raised by IPOs in 2007 – the lowest amount since 1979 and down from $10 billion in 2007

 

Trade sales didn’t do much better says the Association. Cisco, which usually buys ten to fifteen tech companies a year, bought only five in 2008.

 

The bad thing about lousy exit opportunities is that they tend to dissuade VCs from investing in early stage or technologically risky companies – exactly those companies which can benefit best from VC money.

 

The same trend away from early stage investment is happening in the UK, but last year there was not much difference in the level of hi-tec UK VC investment compared to 2007.

 

Maybe the UK VCs have bigger balls than the US VCs.

 

TOMORROW: THE TOP TEN SEMICONDUCTOR COMPANIES 2008

Tags: companies going public, great technology, money, simon bond, venture capital association

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4 Comments

  1. David Manners
    January 15, 2009 21:44

    You’re right really, Alan, it’s just that we get a bit jealous over here sometimes. But I do think VCs should back early stage companies though it seems that VCs think they can leave it to angels, and big companies say they don’t invest in speculative technology because it’s the job of VC-backed start-ups, so everyone seems to be passing the buck on backing risky new technlogies which means that no one except IBM, the universities and research establishments do it. But they, of course, don’t take it to market.
    Hence, I think, the dearth of new disruptive technologies.
    But I think those that can best afford to back new technologies should be the ones to do it. And that’s big companies and VCs.

  2. January 15, 2009 21:40

    Fellas, it really depends on the VC. I mean, c’mon, its pretty hard to beat Kleiner Perkens Caufield & Byers, Benchmark, Sequoia Capital, Sevin Rosen, and about a dozen other really high quality VC’s in the USA. Sure, there are some really lousy investors and pool generators out there – just as there are some atrocious businesses with a large NO EXIT sign on their front doors.
    Do you think that early stage/seed level companies should go to Angel investors rather than even bothering with VC’s …. or not?
    Cheers from Austin,
    Alan

  3. David Manners
    January 13, 2009 12:58

    Thanks Tom that’s a very interesting point about UK semis VCs being more professional than US semis VCs. I’m sure you’re right.

  4. Tom
    January 13, 2009 12:32

    From what I see UK VC activity in semiconductors is down 5x in 2008 compared with 2007.
    Money that would previously have gone into semis was going to energy (now even that is dead) and medical. So semis were getting less of the overall VC funding cake.
    Because there are no exit opportunities VCs have to support their existing investments longer or write off the case already invested. This means big rounds for late stage companies and temporarily keep the overall £ funding figure up while the number of new investments goes down.
    The most serious issue is that UK VCs need to bring in cash from the financial sector either as ‘cash calls’ for previously agreed funds or to start follow on funds for future investments. This is not happening and the situation is pretty bleak unless the govt substitutes for the financial institutions. I don’t see this happening: the govt is much more likely to increase funding to its army of incompetent authorities, agencies and quangos.
    In my experience UK VCs active in semis are more professional than their US counterparts. However, they are probably even more affected by the credit crunch because our financial industry and government never liked high-tech anyway.

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