Starting To Bloom: UK Venture Capital Invests in Internet
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It used to be an oxymoron to mention the words United Kingdom, Internet and venture capital in the same breath and keep a straight face. There simply wasn't any venture capital to mention. That's changing as the Internet becomes a global opportunity and the UK begins to marry capital and creativity into the Internet.
Internet World UK's finance day sessions on May 14 in London brought together some great speakers who highlighted the emerging opportunity and increasingly fertile soil to plant new ideas in the Internet space in the United Kingdom. Among the soundbytes and summaries:
In the big picture more than 700 million pounds (UK Sterling) was invested in high technology by venture capitalists in the UK last year. In 1998 we estimate that number could surpass one billion pounds with perhaps 125 million pounds focused on Internet start ups and seed-stage firms. Many Internet firms fit this bill because the Internet, especially in Europe, is itself a startup industry of sorts.
Increased household adoption of the Internet drives the capital flow. For example, the UK has about 7% of households online, which we think could easily surpass 11% next year. Compare that to the U.S. market place which is at about 30% this year and could be more than 35% in 1999.
Translation from British to American: the opportunity is wide open and just because a brand works in the States doesn't mean it works in Europe.
The venture capital landscape in the UK looks for many of the same hot U.S. areas with professional services, Web-based services, and some etail starting to make inroads. The big twist is that UK firms looking for funding must have a clear means of tapping into the more developed and lucrative U.S. Internet user base, which we estimate is about 50 million.
In other words, for those UK firms currently engaged in commerce, the market for their goods and services lies across the ocean with Americans who want to buy British via the Web--expatriates who long for "real" tea or some other item not easily found Stateside.
Web-based or Web-enabled back-office, accounting, and consulting are also hot areas in the UK, although to varying degrees with the venture community. Entertainment, community, and communications don't seem to be current investment windows here but may emerge in 1999 and 2000 as the Internet usage grows and telecom rates drop.
Other tidbits worth noting: cultural differences and socio-economic factors often get overlooked as U.S.-led efforts try to establish beach heads in the UK and Europe with thinly clad U.S. versions of their services posing as "national" or "regional" when in truth they are little more than that in name only. The real legwork has yet to be done here by U.S. firms.
>From the simple choice of a word to the spelling of it, context and presentation all must adhere to regional ways of relating to be successful in our view. This is like trying to sell The Los Angeles Times as the London Times by simply changing the mast head and a few headlines. The content must be familiar to its audience or there is no real communication, just Web links.
Several factors remain that impede a Silicon Valley venture capital-like experience from erupting in the UK: High telecom costs that prevent rapid use adoption; investor focus on reaching profit quickly rather than investing in "brand" or potential; unfamiliarity by investors with technology; size of the investment tends to be under 1 million pounds; investors don't often think globally; and the lack of an established exit pipeline via public market or private sale as well-oiled as it is in the U.S.
There are inklings of possible greatness in the UK venture-meets-Internet landscape. But more of a financial industry awareness of the opportunity must occur.
At least the words United Kingdom, venture capital, and Internet are all now being mentioned in the same breath. Real capital is being deployed, something unheard of little more than a year ago. Next year we expect that chatter will be louder.