Startup Funding

Startup Funding – short term or long term?

I was reading an article featuring Neil Woodford this morning on the BBC website, that talks about “how appalling” the UK is at providing start-up funding in the tech sector. Now, to most of you this won’t come as a huge surprise, although, I do think there are funds there, you just have to look for them.

The point that really struck me was the comment that investors are only looking for a short term buck. The reason this jumped out at me was not that it came as a surprise, I think we have been a short-termist country for the last 50 years at least, it was more a conversation I had with a colleague a few weeks ago about the Chinese approach to investing. Here in the UK and it is probably true of a lot of the Western world, we invest with a view to getting a quick return and then getting out. The conversation I had with my colleague showed a very different picture in China. There they invest with a view to generating long term returns on a regular basis. They are looking to generate income in the long term and not a quick fix.

So the question is, what strategy is more effective? You cannot simply look at the two different countries and say their growth was higher so therefore their strategy is better as we have to look at the long term to see a true picture. If we go back fifty years, China’s economy was not strong and the Western economies were in a much better position. However, in the modern economic world, there are few that would challenge the strength of the Chinese economy and surely we need to learn from that.

Short-termism has never worked in my view so we need to look at long term business strategies to get the best returns. The challenge then become managing the expectations of the investors, how desperate are they to make money for one year or do they want to generate income for a decade. I know which way I would go.

Let us know what you think here.