Large European businesses should invest in less well-known tech startups, according to former Tech City boss and CEO of Canary Wharf-based startup incubator Level39 Eric Van der Kleij.
He told V3 that the best way to improve the investment outlook for tech startups would be for businesses to make investments in a company's potential, rather than their bottom line. "European firms need to start valuing companies that they're buying for their strategic values, rather than just on their earnings," he explained.
"A US company like Facebook will acquire a company like Instagram for what is a ridiculous valuation. But it's not; it's a strategic value. Our European companies and major corporations could do the same but historically they haven't, instead they've asked for a multiple of earnings to measure the value of businesses."
He added that while these kinds of investments are more risky, they open up more opportunities for both the buyer and the company being bought. "Acquisitions for strategic value, while being slightly risky, actually are the way you achieve supergrowth and that's why the US companies do it – either to achieve supergrowth or for strategic reasons."
In addition to more willing business investments, Van der Kleij suggested that startups should receive better education on the potential of stock market flotations, saying it should be "possible for high-growth, young companies to exit in other ways than selling their businesses".
He added: "Helping young tech companies to understand how to use the capital markets to drive their growth is another thing that's extremely valuable."
Van der Kleij's Level39 incubator assists with growth for startups in finance and retail sectors and is based at the heart of London's financial district on the 39th floor of Canary Wharf. Earlier this year, Level39-based educational video firm Mobento achieved one of the highest funding rounds for a Tech City startup, with £1.1m raised in its initial round of investor funding.
Last week, Dragon's Den star Piers Linney called on UK venture capitalists to mimic Silicon Valley investments to encourage the growth of the country's startup scene.
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