The availability of capital for the technology companies in the UK is a shot in the arm for the concept of the UK as a “trading nation”.
We live in uncertain times… Wherever we sit politically, this is a statement most of us can agree with. The uncertainties are not just local with the vagaries of Brexit. The trade war between the USA and China sends out ripples that look like tsunamis for global trade. The protests in Hong Kong destabilise a major trading hub and global banking centre. The Middle East remains unstable with the inevitable impact on the oil market underpinning much of international business. Yet uncertainty frequently brings opportunity.
The UK is home to a strong technology sector. The nation is particularly successful at creating small start-up companies in the technology sector. Historically, two models were particularly common for the creation of these new high technology companies. University spin outs, where engineering and IT research in particular, with direct commercial relevance and where the research team were motivated to create a company to commercialize their ideas; were able to attract funding and set up a business. The second model was the satellite model where a large company would a) attract small supplier companies to be created to meet specific needs of the larger player and b) as the strategic focus of the large player changed small groups would spin out of the company to pursue the commercial development of a technology no longer seen as core to the main actor.
Much of the success of the sector in the UK has been based on access to finance, to support university spin-outs, the creation of satellite companies around major industry players and to support specific technology businesses coming out of major companies. Each spin-out group has a credible story and the finance industry and government has recognised this. The vibrant market for Business Angels, Venture Capital, Government Grants (Innovate & Horizon 2020), Tax Incentives (R&D Tax Credit Scheme, EIS), and Patent Box all recognise the importance of small technology business to the British economy.
To a significant extent the current uncertainty has had a negative impact on local equity investors and has placed increasing pressure on grant schemes – in simple terms they have become much more competitive as a source of small company funding. Bank lending to small businesses has also declined in the last year. Now, this is where uncertainty and opportunity elide. The British Business Bank reports that UK SMEs raised 6.7 billion pounds in equity funding last year, an all-time record. Set alongside this, new data released by the Department of Digital, Culture, Media And Sport shows that in the first seven months of this year the UK technology sector attracted 5.5 billion pounds in overseas investment. There is international faith in the UK technology Sector and the decline in the value of the pound now makes investing in UK companies particularly attractive.
The availability of capital for the technology companies in the UK is a shot in the arm for the concept of the UK as a “trading nation”, trading in its native skills and technology. If a warning needed to be sounded, the bleeding of control, the loss of sovereignty, from this “shot in the arm”, may reduce the value of these investment to the UK in the long term. While we continue to generate great technology ideas we can trade. In the longer term we need to ensure that the bulk of the benefits of that trade come to the UK.
MSC R&D has nearly 30 years’ experience in helping tech business leaders raise funding to accelerate their R&D.
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