How do you tackle the chronic shortage of funding available for UK tech companies outside the South East? If you’re PlusNet co-founder Lee Strafford, you put together an unusual kind of VC firm.
Accelerated Digital Ventures (or ADV for short) is best thought of as an ‘investment platform’ rather than a fund. It’s designed to bring more investment cash into the frame for tech businesses at all stages, from pre-seed through to late-stage growth. It has been kicked off with a total of £100 million from Legal & General and Woodford Investment Management, plus £50 million from the British Business Bank.
As well as individual startups, ADV will be able to invest in accelerators, incubators and microfunds, to help strengthen the ecosystem as a whole. More than that, it wants to help large institutions and corporations invest in tech through an ‘evergreen’ structure that means it can back tech companies without the limitations that 10-year fund cycles impose on most VCs.
Strafford notes that 10-year funds can sometimes put unnecessary pressure on entrepreneurs, as VCs push for exits within their fund’s lifecycle. He says that ADV’s structure means it can accommodate a wider range of companies.
“People have tried to replicate Silicon Valley around the world. Some things work elsewhere and some don’t. There have been some huge funds, but they have failed to deliver value outside Silicon Valley.”
Smart capital, anywhere it’s needed
While Strafford is a Yorkshireman most associated with Sheffield and the North, ADV will invest across the UK. “Investors have tended to focus on ‘the golden triangle‘ and London. But smart capital should be able to go anywhere in the UK – bringing capital and value-add to Hull, Glasgow or London or wherever. We just want to be dealing with the best.”
Aside from Strafford, ADV’s team include Scarborough-born tech entrepreneur and TechCrunch co-founder Keith Teare as Executive Chairman. Europe’s ‘Mr Accelerator’ Jon Bradford is a formal advisor. In a Medium post, Bradford described ADV’s launch as ‘The Day Tech Investment Changed Forever in the UK‘:
“As startups delay listing on public markets, and as making significant returns in public markets becomes increasingly difficult, this innovative approach will bridge public market investors with the innovative private side, unlocking or correcting what might be considered a market failure. It’s my hope and expectation that this innovative new approach will be closely watched by private and public investors in the UK and elsewhere.”
Adding value, changing perceptions
Aside from offering a fresh take on fund structure, Strafford wants ADV to be a modern VC firm that offers real value and support to its portfolio. In Silicon Valley, firms compete on the added value they can offer as advisors to a business. The best firms around the world also do this, but the practice isn’t as widespread in the UK as it could be. This could be one reason why an anti-VC sentiment seems common among entrepreneurs in the North. Their experience of being screwed over by people who write a cheque and then demand the world, while offering little support, has left them less than enamoured with the investor community.
Strafford believes this perception can be changed, but that investors’ perceptions of the rest of the UK outside the South East need to change too. “VC has changed. It’s more founder-friendly now, but that’s mainly in London and the South East. We’ve still got to encourage confidence. There’s partly more confidence in the South East on the investor side because there’s more dealflow there. We need to encourage investors to come and play in the rest of the country.
“We may not necessarily invest in the opportunities we see, but may encourage others to do a deal by being a national platform.”
Building ADV has been a three-year process. Strafford says that given the backgrounds of the team involved, they will lean towards disruptive, scalable B2B and B2C companies. He plans for the firm to be out and about across the UK, making and announcing deals from the first quarter of 2017.
ADV is part of a groundswell of VC activity outside the South East right now. The Business Growth Fund’s BGF Ventures is increasing its activity in the North, for example, while Campus Capital (which we wrote about yesterday) is tackling the lack of both funding and investors simultaneously by working with universities.
“Many entrepreneurs have talked about structural issues that stop us building big companies,” says Strafford. “Now it’s time to stop talking about it, and start doing.”
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