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Small companies in the capital that specialise in ICT attract more venture capital funding than companies based in any other European city. In fact, IT-led micro to mid-sized firms in the capital gained £485m in venture capital last year – more than the total invested in the whole of France (£475m) and Germany (£363m). The figures, from investor group g2i, confirm London is the most attractive hotspot outside the US for venture capitalists, with IT firms faring the best, pocketing a third of the total investment into the capital. Accompanying data from Tornado-Insider claims London-based IT companies accounted for almost 10% of all deals in Europe since 2000 – well ahead of second-place Paris with 5.4%. The buoyancy for City-based IT firms was reinforced this week by a business confidence monitor, which found Computing ventures are twice as confident today, as they were this time last year. Although not specific to London, the Orange/ICAEW index showed small IT companies across the UK are more upbeat than companies in any other sector. Shaun Orpen, small & medium business director at Orange UK, said the survey shows the first sign among the business community of an economic slowdown - but IT firms bucked the trend. “I am sure that this dip is temporary and we should look forward to strong economic conditions in 2007,” he said. “It is particularly positive to see that confidence in the IT sector is continuing to grow, suggesting the UK will be at the lead of innovation moving forward.” Asked yesterday about the prosperity of London-based IT firms, the Federation of Small Businesses said the confidence in the sector could create a positive overspill. Said FSB spokesman Simon Briault: “Optimism in one small business sector can often spill over into other areas, so this is potentially good news for all small businesses.” The series of positive signs for City-based IT firms was also hailed as good news for aspiring IT company-owners. “The cost of setting up a web-based or IT business is falling and increasingly small business owners and entrepreneurs are turning to the IT sector either as a way of improving an existing business with a new website, or setting up businesses in the IT industry proper,” Mr Briault said. “Taking advantage of new technology allows entrepreneurs that don't want to go through the hassle and red tape involved in taking on employees to compete with larger counterparts. This means business owners can stay small, but still get access to a wide potential client base.” But experts at g2i have warned that the City “cannot rest on its laurels,” as Silicon Valley currently attracts ten times the investment of London, according to figures from Ernst & Young. In order to catch up, London should form a ‘super-cluster’ with Oxford and Cambridge to promote collaboration across the South East, rather than each investment hub pursuing its own agenda, according to Jens Lapinski, a vice president at Library House. However the small print of a g2i report reveals a more grassroots problem, which may require an equally unified response, albeit with greater urgency. “It is important to note that London-based companies fare less well than the rest of the country during the earliest” stages of external funding, the report says. It adds: “In both grants and awards and deals led by private individuals, London-based companies receive less investment than the other regions. “The support provided by these very early stage capital providers as well as public funds is essential for these companies to enable them to develop to a stage where they are sufficiently advanced to gain institutional investment.” Asked why London-based start-ups are missing out on seed investment, a spokesman for the research told Contractor UK that ‘there is a feeling that the capital can fend for itself.’ Serial entrepreneur Philip Birch, chief executive officer of Imperial College London spin-outs Veryan Medical and Heliswil, provided further clarification. “There’s a tendency [for the government] to think London is so well catered for, with experienced management teams and a truly fantastic investor base, that we’ll find out own money,” he said. “But a grant provides that first bit of undiluted capital that can get a company out of the starting blocks.” He urged the government to provide more financial help to London’s entrepreneurs, as only a stream of awards, grants and deals will offer VC investors steady deal flow and maintain their interest in the capital. It’s an appeal backed in part by Sarika Patel, director of enterprise and technology at Grant Thornton. She agreed that early stage funding is still a “weakness in the capital,” but argued that g2i was helping to address the problem, by providing access funding from the £50,000 to £2m mark. However the group’s own report found, “there is evidence that London is home to a large pool of young innovative and potentially high-growth companies which have yet to receive funding.” Part of the investment equation is about growth potential, and many start-ups fall into the category of ‘lifestyle businesses.’ Typically these businesses are happy to keep ticking over and surviving on cash flow, and therefore have no dramatic ambition to grow. One entrepreneur attending a g2i event, Jon Holmes, CEO of Michelson Diagnostics, said that firms hungry for cash injections need to be motivated: “You've got to be clear on why you're going into this. If you want to make a bit of money to support your family, that's not enough. You've got to really crave success.” Nov 24, 2006 Email this article Printer friendly page Previous Page
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