Biggest challenges to start-ups are HR, equity and expansion

A new report by the Silicon Valley Bank, a US-based commercial bank with a focus on high-tech segments across the globe, highlights the primary challenges facing today’s technology start-ups. Among the major obstacles to success, the survey, which questioned 1,200 executives from software, hardware, cleantech and healthcare companies in start-up and growth stages of business in the US, UK and other technology hubs, highlighted the issues of scaling operations, accessing equity capital and finding appropriately talented individuals. Many start-ups look to solve these challenges by exiting or merging with more experienced businesses, while corporate finance boutiques are increasingly more involved in finding new sources of equity.

The fifth annual “Innovation Economy Outlook reported that around two-thirds of surveyed technology firms met or exceeded revenues targets in 2013, while 82.0% of businesses have a firm belief market conditions will improve in 2014 compared to 2013. The latest report recorded the greatest optimism for the year ahead than in any of its previous editions. This reflects the wave of positivity and a wave of opportunism that is being felt across global tech markets, signalled by the massive exits that have already occurred in the early part of the year. In fact, some quarters have expressed concerns regarding a growing bubble around the industry, last witnessed at the turn of the millennium. Though executives believe that unlike the first phase of the dotcom boom, today’s start-ups are better protected through improved monetisation models and larger customer bases.

Nonetheless, success is providing its own challenges, especially in terms of finding suitable human capital. The challenge of hiring talent continues to be a problem across the globe, though it is especially significant outside of the US and across emerging markets. Around 77% of firms expect to expand their staff numbers by almost a third this year.

Gaining access to equity capital is another major issue recognised by executives, with 81% of firms that had raised private financing reported the process as extremely difficult. In part, this is down to the rising competition across all segments, as well as due to the more cautious approach taken by venture capital firms. The reported stated that angel capital was the most common source of private equity outside of the US.

Most executives view the rollout of new products or entry to new markets as the primary instigator to continued growth, though the challenges offered by scaling operations are considerable. Executives quote costs, regulatory hurdles and underconnected consumers as some major concerns when deciding to expand. Outside of developed countries, businesses and consumers have to contend with much more difficult conditions in information and communications technology, while the business environment itself poses logistical hurdles to entry. Nonetheless, globalisation is improving conditions and offering greater opportunities, with sell businesses increasingly developing contacts across both targeted firms and buyers worldwide.

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