Small Talk: We need venture capitalists or a brave Business Bank to put up the money if Britain wants to have a Twitter of its very own
Last week’s Twitter IPO is yet another reminder that Britain isn’t producing technology businesses that are capable of reaching the same dizzying heights as the social media giants of California.
It is not an entirely fair complaint. For one thing, the UK has in the past spawned high-growth technology businesses that have gone on to dominate their industries - and to achieve the sort of profitability that Twitter can only dream about. Think of ARM Holdings and Autonomy, for example.
There have also been stand-out successes in the dotcom 2.0 era too. Look at Yahoo’s purchase of Britain’s Summly, which made a millionaire overnight of its teenage founder Nick D’Aloisi. Or consider the valuations now being attached to Mind Candy, the East London-based creator of the Moshi Monsters phenomenon that will be wearily familiar to parents of young children the whole world over. Online music business Shazam, meanwhile, got £26m of funding from Carlos Slim in the summer.
Nevertheless, despite the much-vaunted growth of Britain’s “Silicon Valley”, the Tech City development just outside the City of London, which gets regular high-profile visits from politicians of all colours, the UK does find it difficult to ensure young technology businesses that are both high-potential and high-risk get the financial support they need.
A report published by the accountancy firm Peters Elworthy & Moore earlier this year warned that traditional providers of equity finance are shunning large parts of Britain’s technology sector. The British equivalent of Silicon Valley has been so starved of capital that Death Valley might be a more appropriate description, the firm suggested.
That warning is echoed in similar research from accountants Grant Thornton, who have conducted an extensive survey of technology companies in and around Tech City. A third of those businesses now say their growth is being hindered by a lack of capital. In this context, new Government data on the Seed Enterprise Investment Scheme (SEIS), which offers generous tax breaks to investors in start-up businesses, is encouraging. These reliefs include 50 per cent upfront income tax relief on investments of up to £100,000 in the scheme and profits free of capital gains tax, and are proving popular.
Since its launch last year, the SEIS has helped more than 1,100 companies raise £82m from investors and the technology sector seems to have attracted more than its fair share of this. What Britain still doesn’t have, however, is the sort of technology-dedicated venture capital industry that has underwritten the growth of the US firms that have become household names. It will be interesting to see if the new Business Bank can find ways to solve this market failure. This is exactly the sort of hole in the funding pipeline it ought to be focused on plugging.
EU Supply to procure £5m with listing
Look out for procurement software specialist EU Supply, which has announced a £5m fund-raising, and is to list on the Alternative Investment Market. The business is expected to make its debut on Aim on Wednesday, and intends to use its cash for a recruitment drive ahead of 2014, when new European Union rules come into force that it hopes will provide a significant boost in demand.
EU Supply’s speciality is e-procurement – basically software that helps public sector organisations, especially manufacturers, procure services in a highly standardised way in order to comply with the complicated regulatory requirements of the EU. The business already offers a procurement platform used in 10 member states by 6,500 public-sector organisations. Revenues last year totalled £1.6m.
Chief executive Thomas Beergrehn says: “With new EU directives expected to be introduced in 2014, and all member states seeking means to reduce costs and seek better control and transparency of procurement processes, the funds raised through the placing will provide us with the firepower to capitalise on what we believe to be a significant market opportunity.”
The world is your export market
UK Trade & Investment, the Government body charged with promoting British companies overseas, continues its mission to boost our export sales with a new promotion beginning today. Its ExploreExport team is visiting eight regions of England over the next four days offering one-to-one meetings with businesses interested in advice on how to begin exporting, or expand overseas sales.
The initiative is part of a national programme of events in what UKTI has dubbed Export Week, with seminars, training sessions and workshops planned all around the country. Every region will host at least one event a day for would-be exporters (see www.exportweek.ukti.gov.uk for more details, including how to register for an individual session).
The events are aimed at businesses of all sizes, but will particularly suit small and medium-sized enterprises lacking in-house export expertise. Recent research suggests more SMEs are considering exporting, but are nervous about it.
Small Business Man of the Week: Gonçalo de Vasconcelos, Founder/chief executive of SyndicateRoom
“The idea for Syndicate-Room came to me when I was doing my MBA a few years ago; I did quite a lot of work with business angels and I was seeing these fantastic deals they were doing – I would have loved to have invested myself but I didn’t have the sort of money necessary, because they were putting in £50,000 or £100,000.
“We went live in August. We’re a crowdfunding site – like similar sites, we offer lots of investors to put small amounts of money into the equity of new or growing small businesses, but there is an important difference with us. We only list businesses that are already getting investments from business angels.
“The advantage is that the angels have done a huge amount of due diligence on these businesses – plus they’ll continue to work closely with them.
“The model suits everyone. The angels like it because it means they don’t have to go to venture capital firms for funding, while the businesses like it too because their investors act as brand ambassadors.
“We’ve just done our biggest deal, raising £250,000 for Captive Media, which makes those games you see in the men’s toilets in pubs and restaurants where you can play games as you pee. Captive Media got turned down on Dragons’ Den – we think they’ll rue the day.”
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