48 roundtable: IT skills & funding ... continued from previous page
Bank debt dynamics
changing Falconer‘s company began 12 years ago with early equity funding and had never required bank debt funding. With significant recurring revenue Gamma had also found invoice factoring useful. For the past four to five years, however, the company had self-funded through its own cash generation.
considering partnering arrangements with specialists in other areas.
Planning to build another data centre, C4L is negotiating a multi-million pound deal with a large property firm. “They see the technology sector as a growth market and something they want to get into.
In our industry we are
well-known as data centre providers for all the main countries, so they came to us. They get the benefit of long-term tenants but they definitely see it as a strategic investment.“
Staunton suggested government funding often depended upon what technology sector a company operated within, and the current policy ‘theme‘ of the Government.
(Science minister David Willetts recently allocated £600m funding to specific science and research sectors, committed in the 2012 Autumn Statement.)
“Space technology is particularly important in the UK. We may not have got a man on the moon, but we do a lot of space-related infrastructure work and a number of UK businesses are growing in that area.“
Dan Havercroft
Three years ago the company had considered bank funding for a potential £70-80 million deal, but “….we found that difficult and painful, and frankly if the deal had not died for other reasons, then the bank due diligence process would probably have killed it anyway.“
Banker Dan Havercroft admitted bank debt funding was still perceived as a difficult route to funding, but added: “We are seeing appetite and demand for lending improving. Bank debt has never been cheaper with some of the Funding for Lending benefits out there. The funding dynamics are changing, debt is running off extremely aggressively due to shorter terms set against an overall lower demand environment. Corporates are still hanging onto their cash which was revealed on analysis of our overdraft book which is only 50% utilised.“ (Barclays increased its net lending over the past quarter by £1b, based on a gross lending figure of £20b.)
Aware of the funding difficulties of many young technology companies – few assets, IP driven innovation rather than physical products, lack of early revenue, etc – Barclays has been one of the few UK banks to set up a specialist Technology, Media and Telecoms team outside London, added Havercroft.
“We are in a positive part of the country, businesses are growing, but funding is still a challenge, and banks need to invest the time in genuinely understanding the technology sector if they plan to lend to it. But, we (Barclays) have a strong balance sheet, we are absolutely in the market to lend money, and so companies shouldn‘t be afraid to knock on our door.“
Partnering with other
www.businessmag.co.uk
financial players Hawkins suggested the technology sector should look wider for its funding sources –
Recruitment specialist Bloxham championed the support of LEPs and local chambers of commerce. “The localisation drive from government is very technology focused in this region, and they are doing a lot of good work promoting it as a place to invest in. The LEPs certainly have some funding budgets, but the message doesn‘t seem to be getting to companies that could use £50,000 -£100,000 to hire more staff or buy new equipment.
“The Government could do more to create better awareness of these funds, but sometimes it seems to see our technology sector as ‘doing OK and so invests in other areas.“
Walker: “Government funding is too low for technology businesses and people are not aware of how to get it. There needs to be some sort of relationship manager to interface with government funding. Personally, I wouldn‘t have a clue where to start on government funding.“
Tech City: rival or partner?
The Government‘s support for Tech City in London‘s East End had also not gone unnoticed, particularly after David Cameron‘s well-publicised comments.
Bloxham: “We work within this area and there is some rivalry between Tech City and the Thames Valley, which I‘m not sure is necessary because there doesn‘t appear to be rivalry between the London and Reading financial services sectors. I think technology can work together for everyone‘s benefit.
“A lot of Tech City is funded by American corporates, who are just sitting in there to see what happens. They‘ll often incubate smaller companies and buy them up later if they see them as viable options.“
(Cisco, Google, Facebook, and Intel have all invested in the area.)
Staunton pointed out that the presence of big corporates had merely pushed up property rents, effectively pushing out some smaller companies.
Walker: “I think it‘s great that technology overall is getting such a high focus through the promotion of Tech City.“
Can we get funding
through the markets? Staunton: “Over the past few recessionary years stock markets have been flat, but I was heartened by news that things are beginning to pick up, particularly with regard to institutional investment in technology businesses at an early stage and within the life science area, even the floating of medical device companies.“
Falconer mentioned that leading cloud service provider Outsourcery plc – “a very small company in terms of revenues“ – had recently successfully raised £13m by going public on AIM.
Gamma had considered AIM flotation two years or so ago but backed off because the market was too volatile. “To be frank we didn‘t have an impelling reason to do so. We were not out to raise cash, it merely felt like a natural maturation stage for the company.“
Tim Walker
Walker: “The costs of doing it, then maintaining public awareness, can be pretty prohibitive unless you have reached a certain size.“
McMillan: “There are benefits to being private. Being able to plan a long-term investment, for example, that will pay back over 20 years. We are very comfortable with that, and don‘t have to worry quite as much about quarterly results as a public.“
Falconer: “AIM-listing is still associated with low liquidity and a means of raising cash.“
Weaver: “My experience of acting for AIM- listed companies is that many of them wonder why they are on it.“
Havercroft: “It‘s not the route to funding that many people perceive. We‘ve had several people come back from public to private simply because it costs them too much and they can‘t see the AIM benefits.“
Walker said his company had considered a potential £5m acquisition of an AIM-listed
THE BUSINESS MAGAZINE – THAMES VALLEY – JULY/AUGUST 2013
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