Doug Scott, loud mouth Geordie entrepreneur living in the Midlands.

Are Angel Investors in the UK Becoming Disillusioned?

Are Angel Investors in the UK Becoming Disillusioned?

As a prolific investor in early stage tech in the UK I am starting to have concerns and I am probably in a position to understand. In 2012 I started Angel investing in the UK ( admittedly because of the tax advantages of SEIS/EIS ). So now 4 years what has happened:

  • 40-50 direct seed investments
  • over 100 indirect seed investments, simply via Accelerators like Ignite, EF, Springboard, Techstars ( in the early days they were all setup to accept SEIS money )
  • we created www.potential.vc to not be a VC but to be a front for myself and a few friends
  • I become known for my silly pink bandana and being one of the most prolific investors in mad very early stage founders in the UK
  • many of these investments have gone on to raise millions
  • many of those investments have died as companies
  • I have met some great new friends

But I have become saddened by what I now see. The system in the UK seems broken and many early seed investors are saying the same.

 

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Seed investors pile into startups with no thinking about how they will ever get their money out. Admittedly in the UK it is derisked investing because of SEIS/EIS and the reduction in income tax when investing.

So lets compare what happens if you are a seed investor in US compared to the UK :

  1. company goes bust – in US and UK no one gets anything ( in both countries there will be tax methods to derisk the loss )
  2. company gets aqua hired for about $1 million per staff member in US ( in UK if aquahire happens then company will be bought for pennies and founders will be paid nice salary at new company )
  3. company gets bought for a small amount – simply the price will be more in the US
  4. company goes huge and becomes a unicorn – this happens very rarely and is a long term bet but as an investor you feel good as the investment keeps growing – but any exit or IPO may be less value than a US exit

So as an investor you want to feel that you are winning to continue. In the US you can feel like you have won in scenarios 2, 3 and 4, but in the UK you only feel you have won in scenarios 3 and 4 and not won as much.

Thus early stage investors in the UK invest for a while and then stop.

So UK investors are disillusioned.

 

 

Doug

 

 

 

 

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