Business Technology

Lack of equity funding hampers growth of technology sector

3 min read

10 July 2012

Despite Tech City's reputation as innovation driver, Britain's technology sector is feeling the effects of the recession through a serious lack of equity funding.

If technology businesses are to continue to develop, we have to fight the lack of equity funding, according to the new ‘Technology Survey Report‘ by Peters Elworthy & Moore.

A serious lack of funding over recent months has been referred to as the “Valley of Death” or the funding gap by businesses in the technology sector. It’s a cause for concern if technology businesses are to continue to develop and spin out.

The survey, which reflects on government relief schemes, such as R&D tax credits and Patent Box, shows that nearly 70 per cent of technology businesses in the UK benefited from R&D tax credits, ranking it the most successful area of financial support.

Traditionally, equity finance below public market level has been provided by business angels and venture capitalists. During the recession the dynamic has changed. Although new investments are being made, third parties are often investing to protect earlier investments.

Measures such as EIS have tried to promote investment in entrepreneurial businesses, but have hardly been sufficient to stimulate easing of the equity environment in times of economic difficulty.

Chris Walklett, Business Tax Partner at PEM, explained: “Without funding there will be little development of the intellectual property. Clearly the recession has impacted on the availability of external funding, but it is lack of equity funding rather than debt funding that appears to be one of the greatest weaknesses in the UK development and commercialisation of IP.”

The report states further that as a result of the recession, 67 per cent of respondents have introduced more flexible working arrangements for staff, with 42 per cent also bringing in more part-time job sharing arrangements. Working from home has become another popular option to retain and sustain staff, with 37 per cent offering this more often.

However, the report also reveals concerns over the quality of our future workforce. Students are noticeably moving away from science-focused degrees, potentially leading to a serious lack of qualified future employees in the technology sector.

“Despite the strength of our academic base, it has emerged that some 46 per cent of the sector surveyed is accessing overseas resources to support technology development, in particular from the US and mainland Europe, closely followed by the Far East,” said Mr Walklett. “This highlights a keen need for the government to prioritise technology-based skills”.

Britain’s technology strength remains behind the cluster concept, with Old Street’s Silicon Roundabout acting as the engine of development and driver of innovation in the sector.

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