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The challenges for startups and investors within financial services

The challenges of starting a financial services business are well known, but those of an angel investor, the lifeblood of startup growth, can often be overlooked. It’s an odd social construction, because finding startups to invest in is just as difficult as finding investors to fund your startup. 

It seems this view on the startup market is not very helpful, as the gap between new firms and investors becomes an ever-more worrying issue. 

To understand – and begin to close – the gap between investors and startups, we commissioned a study of early-stage investors and entrepreneurs to understand the challenges within the sector faced by both parties.

The issue, it seems, is not a lack of effort, but a lack of connection - something that is essential in growing the UK’s startup ecosystem, particularly as the growth in financial services technology is ever-expanding.

Rapid growth within the startup scene 

Despite the threat posed by the pandemic, the startup world is in no way diminished. In factm quite the opposite. 

In the government’s annual report of new company activities, 2020 to 2021 saw the second-highest number of incorporations created. This is echoed by Connectd’s study; 84% of UK angel investors are planning to invest more into startups in 2022 than they did in 2021. 

So, the problem for angel investors clearly does not lie in a lack of investment opportunities.  

A beneficial impact of the pandemic 

The pandemic has hit all businesses in some way – but for investors, the impact has in many ways been a positive one. 

The investors we spoke to said that productivity increased by 50% on average, due to less travelling and meetings during lockdown. 48% of investors said that they have become more analytical in decision making, and 42% are trying to find a larger percentage of their deals virtually because of the pandemic. 

Interestingly, 74% of investors are more likely to make deals from other parts of the country and don’t feel restricted by their location. This opens up the whole of the UK to new opportunities, rather than the ‘tech hubs’ usually found in major cities.  

The research so far has shown that there are more investors looking for startups, more investment being offered, and more investment opportunities for startups across the UK. So why is there such a difficulty experienced by investors in finding a suitable connection?  

The connection gap 

The answer lies in the all-important connection between investors and entrepreneurs. 

Over 40% of the angel investors we polled said that they waste at least 40 hours per month in search of relevant startups to invest in. Over half of respondents said that they received six to 20 irrelevant approaches in the last month alone.  

Despite this, only a third of entrepreneurs say they look to angel investors as a route to bring in much-needed capital to grow their businesses.  

In fact, the overwhelming majority of startups (80%) said they went to banks to secure investment, while two-thirds said they used their own savings. Only a third considered angel investment for funds.  

The main challenge is therefore quite complex. Startups are either failing to consider angel investors as a viable route of funding or approaching the wrong investors in their bid to find a suitable partner. On the flip side, many investors are spending hours searching for adequate investments.  

The solution 

Matching the right startups to the right investors is crucial in overcoming this growing problem that both parties face, and technology can facilitate that. 

By matching people on what they know, rather than who they know, entrepreneurs will have access to capital to fuel their growth, investors will benefit from a streamlined experience that better suits their skill sets, while business mentors will be able to pass on their knowledge and expertise in a more fulfilling manner.  

This is the solution to the connection gap, and it has the power to revolutionise the UK startup scene if taken seriously. As we enter what’s being dubbed the ‘Fourth Industrial Revolution,’ connecting innovative startups with investors is a critical stage in preparing the country for the tech-fuelled future ahead, and it’s the only way to overcome the key challenge investors are faced with. 


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