Posted on August 15, 2016 by staff

Investors prefer London firms ‘so they can monitor founders’


One of the reasons investment tends to be based around London is the network effect.

That is the view of Pedro Madeira, head of research at London-based Beauhurst, a platform that offers data on UK high-growth businesses.

He says that companies attract investors and investors attract companies, which also attracts fresh talent.

“If you’re investing £1m then you need to make sure the company founders know what they’re doing and you want to see them regularly,” he told BusinessCloud.

“If you think about where the money that VCs invest comes from, like pension funds, most are based in London.

“Some companies relocate once they get funding, others have to travel for their money and some open offices elsewhere, although this isn’t specifically a UK phenomenon and it also depends on the stage the business is at and its valuation.”

Being in London can inflate a company’s valuation, Madeira says, making gaining investment more swift. Many tech businesses rely on PhD holders and London with its universities has a steady stream of these.

The founders of used car search website Carsnip attended about 100 meetings in 18 months to raise the funding they needed – $100,000 of which was secured over the phone from a US investor – but not a penny came from London.

Hampshire-based Morgan Innovation and Technology began investing in medtech companies outside London after encountering funding issues for its own products.

And Leeds-based marketing automation business Force24 resorted to more traditional funding methods after failing to gain funding from VCs with a London bias.