Friday 25 September 2009

Is lack of funding good for UK startups?

Image representing Seedcamp as depicted in Cru...
Image via CrunchBase
At the TechCrunch London event this week, coinciding with Seedcamp Week, Wil Harris of Channel Flip made a comparison of the US and UK fund-raising scene. He showed that it really is much easier to raise money in the US, which we all knew.

Then tonight I came across a blog post by Danny Robinson of Bootup Labs. He says:
There is TechStars, Seedcamp, Extreme University, Launchbox, YCombinator, etc who all invest around $20k in each group of founders and provide a great deal of support and connections for around 3 months.
Only one of these is European.

Seedcamp is one of the best things to have hit the European tech scene but being the only one of its kind, I wonder if it isn't trying to fill too big a hole on its own. The prize for the five or so winners is seed-sized funding with three months of the best mentoring this side of the pond.

The competition to get the exposure that Seedcamp promises is so great that the companies that are being accepted into the final 20 for Seedcamp Week are now well-advanced. Erply, an Estonian ERP business, according to TechCrunch, already has 200 paying customers in four markets and is at break even. On that basis alone (admittedly scant details), this business is ready for a Series A round.

Meanwhile, on the US side, Bootup Labs instead of focusing on getting businesses seed funded, they invest $150k and give them 8 months to get their company to at least "ramen profitable". It's not easy to get in but they take six companies, three times a year.

Erply is beyond this stage but has had to fight for a smaller slice. While success at Seedcamp might now attract the real funding it needs, other seed-stage startups have not jumped over the high barrier to entry with such tough competition.

There are probably some real benefits for tech start-ups to grow up with a need to keep the purse-strings tight. The classic case of a dotcom without financial restrictions,, ended up blowing all $135m of its funding and died while owing suppliers tons of cash.

The difficult funding environment, I hope, will force startups in Europe to seek out excellence in execution, so much so that they will grow up to be formidable players. My fear, however, is that too many opportunities will be still-born. The US continues to encourage failure on the road to success. It seems that in Europe we are still so hung-up about failure that we force companies to fail before they have any chance to prove themselves.