Exploring Innovative Investment Opportunities Beyond London
Hi Sarah Barber, CEO, Jenson Funding Partners
There’s no getting away from the fact that London is a magnet for startup launches and investment. By way of illustration, two-thirds of the £11bn received by UK tech firms in 2020 was allocated to city-based startups.
It’s clear the capital has a wealth of businesses available and will always be a popular location for lucrative funding opportunities. While investors shouldn’t ignore London as a location for investment, having a broader awareness of the opportunities around the country can lead to a healthier, more diverse portfolio and a greater startup ecosystem.
Ideas from everywhere
Firstly, it’s important to recognise the value that regional-based investment opportunities hold. Regardless of where it’s located, every business worthy of investment is doing one simple thing: solving a problem. But problem-solving isn’t exclusive to London. Good ideas come from everywhere – from a university spinout to someone starting a company from their garden shed. Companies in different locations will offer new and alternative ways to overcoming different problems.
Indeed, for a small country, the UK is increasingly diverse. Investors should feel comfortable exploring areas beyond London. The diverse ideas these regions contain and potential growth they hold will give investors access to the best underlying deal flow.
Regional pain points
With so much opportunity across the country, it’s easy to wonder why non-London businesses aren’t seeing higher levels of interest. While location may have played a greater factor before, the pandemic has shown that companies don’t need to be in a specific market to function effectively. With more people working remotely, and with many moving away from London as a result, it’s likely that the number of compelling businesses outside of the capital will only continue to increase.
However, even with this positive outlook, the size of individual regional businesses can create challenges for investment. While there are regional funds available, businesses at the earlier stage of their growth are often too small for these groups to invest in. Add to that the specific nuances each region may face in terms of growth and opportunity can mean that stepping into regional investing requires a clear understanding of the challenges companies are facing.
This should be a focus of any investors looking to spread their wings across the whole of the UK. Identifying the specific barriers businesses experience in a given area will help avoid challenges in the funding process and create better discussions with the businesses in the region.
Discovering value
Should investors begin to make steps to explore the regional landscape, it can be hard to identify where to find businesses in need of investment. Trying to find the best, most innovative new companies to invest in can require them to go beyond the usual spaces.
As mentioned, some of the most compelling opportunities come from anywhere. Universities, accelerators, and even business centres can be ripe for early-stage businesses – with companies that attend accelerators being raising 44% more money than and being 75% more valuable than those that don’t.
Levelling up regions
As with any investing, investors should aim to see how equities fits into their overall portfolio, leading to an understanding of just what kind of investor they want to be, identifying the stage, sector, risk, diversity, and how much (or how little) involvement they want to have.
This may include investors wanting to focus on a specific location and this is where non-London regions can benefit. Some investors have a mission to raise the GDP of a region and level up a certain location and this can form part of any strategy that involves going outside of London.
This approach can benefit those earlier stage companies that need funding but may be outside of the London bubble. However, by the fact of being an earlier stage company, the chances of these businesses being aware of the investment options available to them will be limited. It’s therefore up to the investment community to help in that education.
Fuelling the ecosystem
Fundamentally, people don’t know what they don’t know. If an investor has never been to a university accelerator before, they may not realise that it’s a great location for scoping out new opportunities. Equally, if a small business has been turned down by a regional fund, they may not know what else is available to them.
Regional funds should not be shy in guiding these companies on their journey. Whether the business gets a bank loan, meets potential angel investors, or looks for a Seed Enterprise Investment Scheme (SEIS) to gain their funding. This does little harm to the bigger investors, who will benefit by encouraging a greater pipeline of non-London businesses for future funding rounds.
Having multiple opportunities across the UK will build a stronger nationwide environment for innovation. A large portfolio of diverse companies will allow founders to talk to one another about their different experiences, enabling them to support and inspire each other during their growth.
London will always remain a key location for startups and investment but that shouldn’t mean that investors consider other locations. Looking beyond the M25 for a wide range of diverse expertise, innovation, and opportunities can only benefit the UK landscape – both in terms of giving earlier stage companies the finance they need or opening up the market for future investment. Investors will not only broaden their portfolio but the different backgrounds, experiences, and ways of working can also strengthen the country’s startup ecosystem.
