Investors views: what’s hot this year

2010 was a big year for entrepreneurs and small business. The success of the popular BBC television show Dragons’ Den combined with Prime Minister David Cameron’s call on Britain’s “doers and grafters” to save us from recession, which pushed the work of entrepreneurs up the news agenda.

But however good your business model you are going to need funding to get it off the ground. Bank loans and funds from friends and family can be a good start but as you grow, you might need to turn to external sources. Getting funding is never easy so certainly helps to have an idea that is popular at the moment. We asked five investors what business sectors they are most interested in this year.

JULIE MEYER | ARIADNE CAPITAL
VENTURE CAPITAL
Everything is social – by which I mean that businesses rely on networks. The hottest businesses to invest in this year will understand and leverage that using things such as social media. The most successful businesses will be those who organise the most inclusive model for everyone involved. In a music start-up, for example, the artist, fans and the live events manager – all of them should get a cut of the upside. I call this “ecosystem economics.” So Ariadne Capital is looking out for businesses that utilise people's data effectively. This is already being done with search trend words and advertising. This sort of data use is encouraging people to expect something in return for their custom such as cash back or a gift to charity. The utilisation of online information for commercial ends is moving so fast that business models such as Tariq Krim's JoliCloud have sprung up in reaction. He believes that people will start to prefer to pay subscription fees for internet privacy. We believe the businesses that follow these developments will be successful. This doesn’t simply mean using technology, it means “going social” to shake up an industry.

TIPS | WHERE TO FIND OUT MORE ABOUT PITCHING TO INVESTORS
Angels Den is a 4,000 strong network of investors who offer free business funding clinics and speed funding events. The investors offer funding of £2m upwards per business. For more information see www.angelsden.co.uk.

The British Private Equity & Venture Capital Association (BVCA) is the trade body and public policy advocate for the private equity and venture capital industry in the UK. It gives advice to entrepreneurs about which venture capital and private equity firms to target for funding and how to go about it. See www.bvca.co.uk for more information.

The Funding Game teaches entrepreneurs how to fund an early-stage business. The organisation, backed by HSBC and Business Angel Capital, holds educational seminars several times a year. For more information see www.thefundinggame.co.uk

The British Business Angels Association is the UK’s trade body for angel investors. Its website has a comprehensive directory of investors including details on the types of business they are interested in. The organisation offers advice on writing business plans, appointing lawyers and accountants. See www.bbaa.org.uk for more information.

ROSS STEWART| EVOLVE
PRIVATE EQUITY
Many investors like me specialise in turnaround. That means we look for distressed companies with easily fixable problems such as recapitalising the business or changing the management. So we don’t look out for particular sectors really. We are looking for opportunities to really make some money. But I do think that manufacturing will do well. We saw that it was growing at around 5 per cent in the UK earlier in the week.

DAVID GIAMPAOLO | PI CAPITAL
PRIVATE EQUITY INVESTMENT CLUB
There’s no easy answer to this, for Pi Capital looks for good business models regardless of the sector. Historically, we’ve gone for good companies with good growth potential rather than conducting turnarounds for those in distressed circumstances. But again we go where the opportunity lies. It’s all about finding appropriately priced risk. In terms of sectors, I think anything that involves healthcare and fitness has potential. These follow the demand that will come from demographic change: the population is aging and the government is looking for preventative solutions. Or alternatively, anything that is investing in the growth potential in India or Brazil. While there’s no such thing as easy money, if you’ve got a good business model and work hard there’s plenty of potential for success.

FRED DESTIN | ATLAS VENTURE
VENTURE CAPITAL
I think that investors are moving away from investing in capital-intensive business, manufacturing for instance can require millions to get off the ground. I’m particularly interested in ecommerce. The eBay-style businesses that are leveraging the capability of social networking are certainly interesting at the moment. Mobile and web based services are becoming more and more important and there’s certainly growth potential there. People are starting to realise that these services are really taking off. Also, there’s likely to be demand for more transparent banking models. To say the financial crisis disrupted the market is an understatement. I’ve recently invested in a business that is aiming to bring greater transparency to asset management. I reckon we will see more of this kind of thing in the future.

JAMES BRUEGGER | SERAPHIM
VENTURE CAPITAL
There’s a lot of hype around web-based businesses at the moment, the Facebooks, Groupons and such like, they’ve had some astonishing valuations lately and that will no doubt attract a greater number of investors into the market for those types of businesses. I’m personally interested in “connected home” businesses. Businesses that make best use of the services that can be delivered through broadband connections. Smart energy, for instance, where you can remotely monitor household utilities, perhaps check the temperature of your boiler. Likewise, alternative media services that combine the internet and television – things like Google TV – are likely to pick up in the next 12-18 months. Aside from these sectors, it is good to bear in mind that Europe rides on the coattails of American trends. A wave of mergers and acquisitions could also take off here in the next year.