Tech companies in Wales have said there needs to be a wider number of funders and that the current marketplace is too dominated by the Development Bank of Wales. In a report on the state of the Welsh digital economy, tech-led start-ups and scaling startups said access to finance in Wales is not nearly diverse enough.
The report, published by the Coalition for a Digital Economy (Coadec), found that most founders and tech firms in Wales were concerned that public funds, such as the Development Bank of Wales, dominated the funding landscape.
The development bank, wholly-owned by the Welsh Government, is Wales' largest startup investor in terms of participation in equity deals at 391 between 2011-2020. Angel Invest Wales, the largest Angel network in Wales, consists of around 300 Angels which is funded entirely by the Development Bank of Wales.
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The report said that, in order to join Angels Invest Wales, the Development Bank of Wales requires investors to meet certain financial criteria and without being an official member of the network, potential Angel investors cannot access its benefits.
Other successful Angel networks around the UK exist without imposing a similar criteria on people who want to invest their money. The report saw many firms raise concerns about a lack of Angel investors in Wales - both because there were not enough and not enough that understood, or are interested in, tech.
Companies said that the dominance of the Development Bank of Wales in the funding landscape risked creating a culture of funding dependency' amongst Welsh start-ups. They added that good ideas were beginning to skew in favour of only fitting into a grant-giving process rather than the merits of the innovation or what the market wanted.
Multiple founders who moved to Wales from London, either to attend an accelerator or for personal reasons, noted the investment scene in Wales was quite a ‘shocking’ contrast. Wales's largest angel network also only numbers around 300 - by contrast the largest network for angel investors in the UK has over 4,000 angels.
A common frustration of founders was that, while they might settle in Wales, they have to travel to London to find funding. Among improvements that could be made to the funding landscape, tech companies said they wanted to see a new programme established that backs the creation of more venture builders while broadening the entry requirements to Angels Invest Wales.
They also recommended a review into how government funding can be leveraged to provide better engagement with start-ups. While certain investors wanted to see extra business skills support given to startups.
Some Welsh founders struggled to answer basic questions about their plans. One investor said that ‘basic business literacy’ was holding back investment.
Tech star-tups also felt Wales was well-positioned to capitalise on the growing trend towards hybrid and remote working because of its landscapes and low cost of living - as long as Wales improved its physical infrastructure and broadband.
The report said the clusters of startups in Wales were fractured geographically with the north and south not well integrated. Infrastructure problems in both transportation and internet access mean left founders feeling isolated.
The report found that progress has been made through the investment from the Welsh Government into improving infrastructure, but travelling between the North and the South of Wales remains a lot harder than travelling west into England.
In addition, many founders said they were crying out for access to more hubs and coworking spaces to build networks and swap advice and experiences.
In terms of Welsh Government support, tech firms said its public spending would benefit from a more long-term vision to realise Wales’ potential as a tech leader. A laudable attempt to be equitable across Wales’ regions and sectors meant that resources are diverted from the areas where Wales has genuine opportunities to become global leaders.
One stakeholder who was deeply embedded in the ecosystem and works regularly with the Welsh Government described its support as being, in their words, “faddy”.
Neil Cocker, startup founder, advisor, mentor and accelerator consultant, said: “I think the relevance of business support is still massively lacking. We don't have a significant number of first-generation tech entrepreneurs who have scaled and sold businesses and who are now active in terms of investing, advising, and being "visible".”
Though Wales can be good at training homegrown talent, many firms also identified brain-drain as a serious issue with some firms unable to hire developers and coders which suppressed growth. An estimated two thirds of Cardiff’s computer science graduates leave Wales after graduating.
BioTechs spanning Bangor, Newport and Cardiff all identified skills shortages as specific scaling blockers. In one conversation, a founder said retaining local talent had become so difficult that, when asked where Wales’ greatest opportunities lay, they remarked “Liverpool, Birmingham, Bristol.”
Advisor and former COO of fintech firm Delio, Gareth Morgan said: “In our early days, Delio was tremendously fortunate to find and secure outstanding talent, who had a willingness to grow and evolve with the company. The supply pool of talent, particularly in the tech space, continues to be far too shallow.”
Business owners, investors and other figures across Wales’ tech startup ecosystem also repeatedly raised two concerns: that Wales’ business culture is too often ‘risk averse’ and that this feeds into a wider international perception of Wales as having not much to offer.
Adrian Morris, co-founder of software firm Sportsviz, said: “Getting serious investment into Wales faces a host of negative stereotypes or complete ignorance of what we have to offer and yet we are only a couple of hours down the road from one of the financial capitals of the world.
“There is an urgent need to rebrand Wales as a dynamic, exciting and profitable place to do business. We must shake-off outdated perceptions, after all who would want to invest in what they think is an economic backwater?”
This is beginning to change, with organisations like GlobalWelsh and Tramshed Tech working hard to boost Wales’ image overseas, as well as dedicated government organisations like Wales in MENA (Middle East and North Africa).
However, tech firms said they wanted to see more trade envoys set up that champion specific Welsh tech sectors and review the current business diaspora strategy to better promote tech startups.
Coadec executive director Dom Hallas said: “Across the UK we're seeing local ecosystems thrive - nowhere is this as true as Wales where we have local leaders working hand in hand with local founders to build great businesses.
“But there's more to be done and we hope that our new report can provide some insights from the founders on how to do it. This is not the end of the conversation but what we hope is a valuable opening salvo."
Mark John, managing director and co-founder of Tramshed Tech, said: "Despite the current, extremely challenging financial climate, Welsh innovation has shown itself to be remarkably resilient.
“And it is so important that we keep up this momentum that we have created, as the innovative approach of tech startups plays an ever-increasing role across the economy and society as a whole - moving technology from a vertical sector to a multi-sector horizontal, operating across a range of markets and offering benefits to previously ring-fenced sectors."
Elis Thomas, Wales policy analyst at Coadec, said: “This is a snapshot of an ecosystem in flux: the founders I spoke to would all tell you that Wales is a fantastic place to start a tech company, but we have some catching up to do if we are to fulfil our true potential. This report explores the landscape of Wales’s diverse tech ecosystem, reflecting on where founders see our strengths and barriers to overcome, as well as setting out where we think the ecosystem should go next.”
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