Feature

Dotcom confidence still high - despite shake-out



Joy Macknight

Despite complaints that venture capitalists are turning stingy when it comes to funding UK start-ups, a survey has found dotcoms are still in a position to pick and choose their source of finance.

Only 8% of dotcoms interviewed said they became involved with the first venture capitalist that agreed to invest, states the Millennium Millionaires 2001 report by Norman Broadbent International.

The survey of 60 UK chief executives involved in dotcoms showed nine out of 10 could choose their source of venture capital and search for additional benefits from potential backers.

This illustrates the demand for venture capital firms to understand the needs of start-up companies, and to become more knowledgeable about the technology they are backing.

The survey found that 33% of companies chose their investor based on its reputation or brand in the marketplace, while 26% stated that it was the firm's expertise in its market within a specific sector, such as telecoms services. Only 7% based their decision on incubator facilities. This shows that this concept still has only a limited take-up. Just 4% chose firms because of their international presence and contacts.

The average value of a company in this sample is 7% higher than last year which is well ahead of European inflation and technology markets generally.

The survey found that dotcoms have smaller executive boards compared to public companies, which helps speed up decision-making.

The majority of IT managers in the sector surveyed are 30-40 year olds (46%) but the 40-50 year old age group is well represented, at 39%. Only one in three dotcom directors were founder members of their company.

According to the survey, a founder CEO can expect an average gain in shareholdings of £142.7m in five years; a CEO who is recruited will gain £30m. A special class of non-executive director - the stock seeking "extrapeneur" - is beginning to be formed from those who have successfully nurtured a company to success in this sector and can afford to exchange their experience for non-executive positions in potential stars of the future.

Other findings in the report show an increase of 23% since last year of those expecting to float their company rather than execute a trade sale to another company. Flotation is seen to provide the highest return. And despite the dotcom shake-out the survey showed an increase in confidence: 83% expected their company to be worth more in five years time.


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This was first published in November 2000

 

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