Venture capital vs self-funded for high growth technology businesses. This was surprising.

August 16, 2011 by Mark T Littlewood

There seems to be a generally held feeling that venture capital is ususally suitable for rapid growth businesses and that founders should consider taking it if they want to add rocket fuel to their business. 

We ran a quick analysis of some of the fastest growing companies in the UK and see who the most common investors were. It was inspired by an observation 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.

We (The BLN) have run the Deloitte Fast 50 competition for the past few years and it has given us a really interesting view of the UK's fastest growing 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. 

2010 Rank, Company, Sector, % growth, Funding

We weresurprised 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 venture capital isn't the rocket fuel that many people think it is after all or perhaps all those honest, hard-working people that set out to grow profitable, sustainable software businesses – the kind that come to Business of Software – might be onto something…?

I am reminded of somethingthat @Dharmesh said at last year's Business of Software, Venture Capital is not a necessadry evil, in fact it is neither necessary, nor evil.