Entrepreneurs should be selective with their investors

John Ingram
British entrepreneur Richard Branson (L)
While the temptation to partner with the highest bidder will always be there, corporate venturing brings more than money to the table (Source: Getty)

It’s not a secret that London is the fintech capital of Europe. Startups and tech entrepreneurs can flourish here because of the concentration of world-class financial services, and the access available to funding from a variety of key players.

However, the nature of investment in tech startups is undergoing a process of significant and positive change.

New kid on the block

The traditional route for new companies looking to grow was to seek venture capital or an angel investor, before receiving injections of private equity capital once the business has become more established.

This was a tried and tested path for startups, but now there’s a new kid on the block: corporate venturing.

Corporate venturing is the means by which large firms take an equity stake in smaller, innovative startups that they have an active, sectorial interest in.

It’s a mutually beneficial relationship and the rewards are manifest. The larger firms can offer their industry expertise, exposure through having a bigger brand name and access to their customer base and corporate networks; this means the startup can focus its efforts on product development.

Meanwhile, the corporates are able to harness the potential of the startup’s tech offering whilst also staying ahead of possible industry disruptions caused by any trailblazing entrepreneurs.

Mutually beneficial

Savvy startups should spend their formative years building relationships with the type of partners who will be relevant and beneficial to their expansion.

Consider who your target market is and which corporates will enable you to roll out your product to the next level. In the case of MortgageGym, we’ve been able to enter into partnerships with LSL Property Services and GoCompare, who’ve helped us to take our mortgage robo-adviser to a wider consumer audience.

By going down the corporate venturing route, startups can be selective about their investors and access industry experience that could prove invaluable.

More than money

While the temptation to partner with the highest bidder will always be there, the corporate venturing model of investment allows you to seek collaborations which bring more than just capital to the table.

Once you have your stable financial backing secured, you can begin to concentrate on what really matters: product development and delivering innovative services to customers.

In contrast, venture capitalists have traditionally been under pressure to generate short-term returns, and as a result, a lot of new businesses can fail in this period because of this narrow focus and lose touch with nurturing the firms they are investing in.

Corporates, however, approach smaller firms with more strategic objectives in mind that outweigh any quick financial gains, therefore fostering longevity.

Thanks to corporate venturing, collaborative relationships between startups and investors can be formed that will bear fruit now and further down the line.

Fertile fintech

Corporate venturing in the UK is a growing trend that looks set to continue, with investment activity in UK start-ups increasing by 19 per cent from 2016 to 2017.

This is very encouraging for UK business, building upon the fertile fintech hotbed of London – as well as other cities such as Edinburgh and Manchester.

These developments are great for startups. It means that they can be truly selective about their investors, seek mutual strategic understandings and maintain a level of autonomy.

It’s more than just money, corporate venturing provides opportunities for fintech entrepreneurs and established corporations alike.