Technology companies call for funds

If there’s one sector that always seems to thrive, it’s technology. However, a survey of over 2,000 technology businesses reveals the sector’s awareness that it is operating in uncertain times.

The poll, conducted by James Cowper and the Kreston International Network, included the earliest stage pre-revenue spin-outs to larger businesses employing over 100 people, with revenues in excess of £20m. In comparison to last year, the survey found a downward trend in those accessing UK’s state aid.

Businesses feel the impact of the recession most when they encounter difficulties in raising equity finance and generating revenues. So, in a bid to secure government help to boost the industry, technology companies are calling for the government to make more money available.

Despite these pressing concerns, some 43 per cent of respondents raised money within the last year, with 35 per cent raising £1m or more. A high percentage of respondents also plan to raise over £1m within the coming 12 months. Over half of the respondents have turned to business angels, and a third rely on family and friends.

“Planned sources of funding are sometimes combined but most popular are grants followed by business angels. Most grants are match-funded, meaning they are only awarded when other funds have already been raised. So, they don’t necessarily represent an alternative source of funding. A high proportion of respondents had benefitted from grants, but despite their apparent popularity, replies suggest that the application process can be off-putting,” said Sue Staunton, partner and head of James Cowper’s Technology practice.

From a tax point of view, respondents largely called for extensions of existing tax incentives but there were also arguments for a fresh approach to retaining intellectual property through income tax relief.

Many people called for an extension of the EIS cap from 30 per cent. There were also calls for the reduction in PAYE/NI for new employees in technology-based businesses. As a method of retaining intellectual property and supporting entrepreneurs in the UK, respondents suggested there be income tax relief for engineers and natural scientists. 

Staunton concluded with some advice for the government: “Many of the themes drawn out in the survey are consistent year-on-year but of particular note this time were the numbers of respondents who appear unaware of key government initiatives, such as Patent Box. This strongly suggests that before other measures are introduced, the Coalition should publicise the opportunities they already offer to businesses within the sector more effectively.”

So, in what ways can the government boost technology companies? Although the most popular governmental initiative has been that of research and development (R&D) tax credits, popular notions amongst respondents to boost the sector were:

  • More money should be made available to earlier stage companies;
  • A reduction in red tape and legislative burden;
  • A £2b Bank of England “Dragons’ Den” fund should be set up; and that
  • The government should consider mandating banks to lend to pre-revenue companies.

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