VCs try to back fast growth businesses. The UK data says they might suck at it.

August 12, 2011 by Mark T Littlewood

We thought we would run a quick analysis of some of the fastest growing companies in the UK and see who the most common investors were. I was inspired to do so by Sherry Coutu who noticed that only 14% of the fastest growing 500 companies in the US were venture backed according to Carl Schramm.

Carl Schramm talking about US innovation and venture capital. The figure quoted above is 21 minutes in.

What we found was a huge surprise. Rapidly growing UK companies with venture backing represent about the same amount of the total.

We have run the Deloitte Fast 50 competition for the past few years and it has given us a really interesting view of the cream of the UK’s technology companies. The Deloitte Fast 50 is an objective ranking of the UK technology companies with the fastest growing revenue over a five year period.

In last year’s rankings, just 8 of the 50 fastest growing companies in the UK, are venture backed. Amateur mathematician’s will spot almost immediately that this is just 16% of the total.

Here is the list along with the sources of funding identified. (If anyone spots an error, please let me know and accept my apologies in advance), I did this over a glass of very fine red down in Biarritz where I find myself on vacation by mistake so it is not the fault of our research team. 🙂 It is also hard to make a proper distinction between ‘Angel funde’ an ‘Self funded’ in this situation.

  • 2010 Rank, Company, Sector, % growth, Funding

We were pretty staggered that so few venture capital investments were represented in the list. There are a few possible reasons, The Deloitte Fast 50 requires five years worth of accounts. Perhaps VC investments are in companies that get sold within 5 years? Perhaps they are in early stage companies that don’t yet have revenue (though the trend here seems to be that VCs are investing in later stage deals on the whole.

Maybe VCs should be letting their portfolio companies know about the Deloitte Fast 50 and should try to ensure their portfolio companies enter by 14th September so they are more properly represented?

3 responses to “VCs try to back fast growth businesses. The UK data says they might suck at it.”

  1. Paul Walsh says:
    August 12, 2011 at 4:05 PM

    Hi Mark,

    Interesting data and analysis. As for reasons, maybe if you pivot the data you draw a conclusion that if you want to make the Deloitte Fast 50 you need to be in Internet or Software businesses. In which case you are less likely to need VC backing. The data measure acceleration rate of growth but not the actual revenue. Maybe there are a lot of App and Web companies that will see 5000% revenue growth but never become $1B businesses hiring 1000+ employees? I’d imagine VC money more inclined towards those.

    Regards

    Paul

  2. Mark Littlewood says:
    August 26, 2011 at 1:19 PM

    Good points via Twitter from Jens Lapinski, CEO of AI Hit.

    @MarkLittlewood @TechFast50 tries to do the right thing. But the methodology is wrong

    @MarkLittlewood @TechFast50 show me top 50 companies with less than £1m revenue within last five years, ranked by absolute revenue now.

    The Fast 50 is a global programme that adopts broadly the same methodology across the world to identify the fastest growing technology companies by revenue growth. It requires five years of revenues and accounts to be eligible.

    That does mean that it excludes fast growing startups but it doesn’t pretend to get these. If you used the methodology Jens suggests, you would definitely include some very interesting companies but you would also exclude companies like Autonomy who were ranked number 42 in last year’s list.

    I think both methodologies are interesting though deliver different answers.

  3. Jens says:
    August 26, 2011 at 4:27 PM

    Hi,

    have had some thoughts how the methodology of the Fast 50 could be made more inclusive, more interesting and more just:

    http://jenslapinski.wordpress.com/2011/08/26/fast-50-a-better-methodology/

    Feedback would be great,

    regards,

    Jens