27 Sourcing the equity
For many technology businesses, as underlined by initial responses to our national survey of the sector, the key difficulty of the recession has been the inevitable squeeze that it placed upon the availability of equity, writes Sue Staunton of James Cowper
We found that many serial investors (whether individuals or institutions) cut back on new investments, either husbanding their cash or using it as ’follow on’ funding to shore up existing investments.
We are now beginning to see some signs of recovery in the market, although investors are nervous (with deals, typically, taking longer to conclude) and there seem to be fewer prepared to invest at the earlier, pre-revenue stages. So, how is it that companies have been managing to launch and to keep going and what improvements do we see in the short to medium term?
We’re finding that a number of different strategies are being adopted: • More funding from family and friends in the initial stages • An increase in the number of ’virtual companies’ with few if
any staff being taken on and work being outsourced, so these companies can retain cost flexibility • Carrying out revenue generating activity from day one – linked to the core technology, but typically some form of consultancy carried out by the owners of the business • Some are establishing early partnerships with trade partners who have an interest in the development of the technology. The deals can range from subsidised supplies to funded development of a specific application of the technology for the partner. • Slowdown of the development pipeline or concentration on one or two key applications, perhaps licensing out the technology for development elsewhere in non- core application areas • Flexibility in the implementation
of the original business plan. We have seen a number of companies that have totally changed their focus to enable them to cope with the exigencies of the marketplace.
So should we expect to see changes and improvements in the short to medium term?
We’re certainly beginning to see non- traditional funders getting involved, with money coming in from overseas sources for example – including BRIC countries and the Middle East. We believe this is trend that is likely to continue.
There have also been a number of governmental initiatives launched. Improvements in the Enterprise Investment Scheme tax benefits together with the launch of the Seed Enterprise Investment Scheme in the Autumn Statement are hoped to stimulate investment. Certainly, with interest rates as low as they currently
are, individuals may be led to more speculative in their attitude to their finances – but time will tell.
Grant funding has always been important in the sector, but has been less available recently in the UK. The recent launch by the Technology Strategy Board of Smart, which offers funding to SME’s to engage in R&D projects, has to be good news. There are three levels of grant available under the scheme: • Proof of market • Proof of concept • Development of prototype.
The government’s stated focus on technology and innovation for the recovery of the economy should help to stimulate growth of funding for businesses within the sector, but the position is very fragile and will be affected by what goes on in the wider global economy.
Details: Sue Staunton Head of technology 01865-200500
sstaunton@jamescowper.co.uk
THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – FEBRUARY 2012
www.businessmag.co.uk
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