Fast growth companies located in London’s Tech City are being held back by a lack of capital, new research suggests.
Tech City senior executives say that their businesses are missing ‘significant business opportunities’ due to the fact that they cannot secure finding in time.
Research from the Tech City Futures Report shows that 29 per cent of respondents believe this is the case, while 19 per cent admit that they have had to make people redundant due to funding issues.
The study also finds that Tech City companies use, on average, three sources of capital – angel investors, venture capital firms and borrowing against personal assets.
However, while 43 per cent of Tech City firms have raised further capital, 23 per cent have experienced problems such as length of time, investors or banks unwilling to take risks, or flat out refusal.
The Tech City Futures Report has been compiled by GfK, in conjunction with Grant Thornton. Steve Leith, head of Grant Thornton’s early-stage technology team, says that the advisory firm has noticed a ‘growing gap’ for businesses requiring investment of between £500,000 and £2 million.
He adds, ‘This is in stark contrast to the funding community in the US where the cycle of tech entrepreneurs reinvesting in start-ups is fully developed and the VC community has a greater appetite for risk.
‘For the majority of these businesses, it is “make or break” if they cannot secure investment at this growth stage.’
More on London’s Tech City:
- Silicon Roundabout to receive £50 million facelift
- The stars of Tech City
- East End to ‘rival’ Silicon Valley
In an effort to tackle funding for the technology businesses populating Tech City, which has been dubbed Silicon Roundabout, the government has stepped up its commitment to the Seed Enterprise Investment Scheme (SEIS) and early-stage backer MMC Ventures has launched its MMC London Fund with backing from London mayor Boris Johnson.
Further statistics from the report finds that London-based technology companies are experiencing problems with recruiting, as well as funding. Some 45 per cent of survey participants identify a shortage of skilled workers as the biggest issue facing them and 77 per cent say that accessing more talent would allow them to grow faster.
Tech City firms have recruited an average of six people over the last year, but the majority of that has been to replace talent lost – rather than bolstering numbers.
Ryan Garner, research director at GfK, comments, ‘This report highlights the ecosystem of entrepreneurship and how vital it is to have all the elements in place – business leaders with vision, skilled employees to create and bring products and services to market, investors willing to take risks.
‘[Some] 8.3 per cent of Britain’s GDP comes from tech, and that is expected to rise to 12 per cent by 2016. Our research shows that Tech City is a tipping point.’