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Why Is Smart Money So Valuable?

September 1st 2017

Startup and young businesses can be the key driver for growth and a recent study published by the Centre for Economics and Business Research looked at how fast various locations in the UK were expanding and placed Cambridge at the top of the list, having beaten last year’s no 1, Milton Keynes.

The report concludes that it’s the skilled people in the wider Cambridge ecosystem that are driving growth and predicts that Cambridge is likely to be the fastest growing city economy in the UK for the next decade.  Aside from Milton Keynes other city contenders include Manchester (software), London (fintech) and Sheffield (advanced manufacturing).

In Cambridge, the University is of course a key driver for producing both highly skilled graduates and a host of innovative Intellectual Property.  Cambridge boasts more patent applications than any other UK city and over 80% of it’s start-ups are still in business after 3 years.

Of course, in addition to great people, high growth businesses need access to capital at each and every stage.  This is not without challenges, even in the mature Cambridge ecosystem.  The rapid rise to fame of virtual reality firm Improbable – Cambridge start-up to $1bn unicorn in 5 years – illustrates some of the issues.

Improbable started when a couple of Cambridge graduates shared a common interest in gaming - and frustration with the capabilities of multi player online games.  Unencumbered by history or legacy investments, they built a new system that could create significantly more involving and feature rich virtual worlds.  Today, aside from gaming their technology is finding use across medicine, finance, logistics – and cyber crime.

But whilst their rejection of convention is the key to their technical success, it proved a barrier to funding.  Indeed, their initial financing came from the typical “FFF” – founders, family and friends, who put in £1.2M.  However, the key was to then attract notable angel investors, including Herman Hauser (founder of Acorn) and Alexander Asseily (founder of Jawbone).  Such luminaries could then provide introductions for the next round (£13M from silicon valley VC’s), followed by further funding from Horizon Ventures and now Softbank with £390M.

At each stage of funding, the Improbable founders were determined to find investors that they’ve “not had to dumb down to”.  That’s enabled them to avoid having to compromise their vision, remain open and flexible, and avoid who’s-in-control issues – even if it’s meant lower valuations.

As the founders point out, clever investors are worth a whole lot more than dumb ones – it’s never just about the money.

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