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Growth Entrepreneurship


To mark the first ever Enterprise Hub Network Showcase Event, John Cavill, one of the UK’s most distinguished entrepreneurs, has conducted research into the factors affecting new venture success.

“I was asked to look at the various international academic studies into what factors affect growth entrepreneurship,” explains John Cavill. “I have focused on two themes shown to have the greatest impact on new venture success: Venture Funding and Entrepreneurial Teams.”


The Enterprise Hub Network supports specific types of companies that share many of the same characteristics and challenges, even though individually they are quite different. For example, the majority of Hub companies seeking investment are looking for anything from £10,000 – £1 million. Many of the Hub companies represent fast growth and high-yield potential, which is attractive to investors of a certain type.

Since the period of heavy investment in technology businesses in the late 1990s the whole business funding market has matured. John explains: “The nature of early stage venture funding from venture capital and Business Angel sources has changed. In recent years traditional venture capital funds have moved up the food chain to concentrate their efforts on later stage funding, including management buy-in and buy-out opportunities, which require much higher levels of funding.

“This approach has also enabled venture capital fund managers to concentrate their efforts on smaller and more manageable investment portfolios, which contain more established companies that are considered to carry less risk.”


Managing risk on early stage investments has become an essential part of the decision-making process, and organisations such as the Enterprise Hub Network are playing a major role in helping to select and groom companies through a variety of business support services, from business planning to investment readiness. For typical Hub companies, however, an ‘equity gap’ has emerged.

This gap, which has been created by the change in focus of venture capital funds is now being filled primarily by business angels who closely follow the investment decision making process adopted by early venture capitalists. A problem arises, however John concludes, “Because many Business Angels are not experienced private investors and venture capitalists are not as proficient at making investment decisions as one might expect.”


Analysis of existing research also shows that although venture capitalists and business angels believe the most important factor in deciding whether to invest in a new company is its management team, they still rely heavily on their ‘gut feel’ to assess management capability.

John explains: “A study into human capital valuation techniques used by American venture capitalists showed that by far the most effective approach adopted was used by just 13% of venture capitalists.”

Another study indicated that the inherent risks in venture capital funding are very high with an average total of 40-55% of venture capital funds’ portfolio companies either failing or achieving no more than break even.

Venture capitalists and business angels are selective with their investments: it is only potential ‘high-growth companies’ that they are interested in pursuing. This type of venture, also known as Gazelles, is characterised by achieving annual sales growth of over 20% per annum for a minimum of four consecutive years. Although investment capital between £100,000 and £2 million is available, there is still a general belief that an ‘equity gap’ exists when in fact most companies seeking finance are not investment ready. As a result many of these companies remain under funded by other sources including grants, the founders, their families and friends.


Numerous studies have attempted to define common entrepreneurial attributes with limited success. It is now becoming clear that there are in fact many different types of entrepreneur who engage in a range of business ventures.”

So what makes an entrepreneur? When is an inventor an entrepreneur? Is an entrepreneur simply the business founder or is it someone brought in to take the concept further? Are there different types of entrepreneur based on specific character traits? Are entrepreneurs born or can they be made?

Understanding the entrepreneur and the role of the individual and management team is clearly critical to the success of any business.

John Cavill argues that if entrepreneurs are to attract the attention of external investors, it is important that a capable and well balanced management team is in place, or at least identified, as lone entrepreneurs are generally considered too much of a risk. Although product or services offerings, along with the dynamics of the company’s chosen market and its capital structure are also shown to be important, they are secondary to the management team.


Research suggests that high-growth companies are important to the country’s economy, and yet amazingly there is no comprehensive understanding of what factors drive venture success. Although tax incentives are important to attract early stage investors, there is still a need to enhance their investment decision skills. Early education in entrepreneurship and social capital, along with support services tailored specifically for developing high-growth companies could all prove to be a worthwhile long term investment.

John concludes, “There is a real need for venture capitalists and other sources of venture funding to improve their skills in accurately assessing new investment opportunities, and in particular the potential of entrepreneurial teams seeking funding.”


John Cavill MA, ADipC, CDir, FinstD, FCIM

In 1979 at the age of 30, John Cavill founded the UK subsidiary of Data Translation Inc. a US manufacturer of scientific and industrial microcomputer products. When LAN (Local Area Networking) technology first emerged, John set up a specialist networking division, which subsequently became a market leader in its field. In late 1988 John founded Logical Networks plc, a UK networking services business which was VC funded by 3i plc. Logical Networks was eventually acquired in 1997 by Datatec when sales reached £50 million and staff numbered around 200.

In 1995 John received an EFER (European Foundation for Entrepreneurship Research) award as ‘One of Europe’s Top 500 Dynamic Entrepreneurs’.

The full results of John Cavill’s research were presented at the Showcase Event on the 22 February 2007. The paper is also available on:

Published: 23rd March 2006

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