If you’re based in the capital and are looking for funding, there are a number of options out there. Marc Barber reports 

If you’re based in the capital and are looking for funding, there are a number of options out there. Marc Barber reports 

Tom Beckenham could have set up his software business for the print media industry in his hometown of Sydney, but decided that London presented the better opportunity.

‘It is difficult to start a company like this in Australia. Firstly, the costs are still quite high there, especially development salaries. Plus, the market is much smaller than it is over here.’

Beckenham’s judgement has proven to be spot-on as the company he has set up, Specle, recently secured £150,000 of first-round funding to grow its business. Although he admits that it wasn’t easy when he first came over in early 2007.

‘Up until this point, it has been difficult. When we first came to London we spent a lot of money on things we didn’t need such as high-price lawyers and accountants. We didn’t quite have enough funds to finish our products at one point.’

Urban jungle
While London may have a £162 billion economy and make up 17 per cent of the UK’s GDP, it’s easy for a company to lose its way in the city’s sprawl. Both Beckenham and the CEO of social networking site CitySocialising.com, Sanchita Saha, have benefited from signing up to the gateway2investment (g2i) programme. It helps early-stage companies that are willing to give up a portion of equity for financial backing.

Says Saha: ‘It helped us make our business case as tight as possible. The workshops took me through the legal terms and prepared me for the due diligence process when speaking to investors. When they rip through your business plan and look through every single contract, they really put you through the mill.’

The company recently received £260,000 from a syndicate of nine angel investors, which was £40,000 more than was initially pitched for.

‘One of the major things that g2i provided basically was support,’ says Saha. ‘Fundraising is quite a scary process to be thrust into on your own.’

Specle’s Beckenham makes a similar point. ‘What the programme did for us was to focus our attention on to one thing that could actually make money, and it changed the way we pitched to investors.’ Crucially for Beckenham and Saha, the programme provided connections and networking opportunities that otherwise would have been hard to find.

Weird science
David McMeekin is the chairman of the London Technology Fund (LTF), which has a pot of £15 million to invest in ambitious tech companies in the capital. He says: ‘If you want a high growth and high tech economy, which will lead to real value and job increases over the long term, then you have to look at the needs of early-stage technology companies. In London, the funding needed for a tech business is often around £10 million. We regularly get requests which range from £100,000 up to around £10 million.’

Evidently, the LTF has to be choosy about how it spends its £15 million, which is why it has made 16 investments in seven companies since it was set up three years ago. Companies which have received investment include Intellistream, which develops interactive 3G video technology, and Immune Targeting Systems (ITS), a maker of synthetic vaccines for mutating viruses such as influenza.

The fund works on a co-investment basis with other backers – primarily business angels – and sometimes large corporates. So far, these other parties have invested an impressive £18 million. ‘We need to find the right co-investors as we do require syndicates,’ comments McMeekin.

The capital has 42 universities and colleges, with the top three (UCL, Imperial and King’s) having a research income greater than Oxford and Cambridge combined. ‘There are masses of good ideas out there; the knowledge economy in London is phenomenal,’ he says.

At the universities, there are ‘proof of concept’ funds which can provide small sums to help individuals further test and develop potentially great ideas. The LTF comes in at the next stage of the process. ‘Proof of concept funds often have only £10,000 to £30,000,’ says McMeekin. ‘Many of these companies that approach us need £4 million to £5 million in the first round. When it comes to getting angels involved, it can be difficult as they are not the fools they are sometimes portrayed to be. They are intelligent, rational, and therefore they want to invest in areas they understand. They tend to keep away from areas like life science, preferring sectors such as software, or maybe restaurants or publishing.’

For companies not seeking funding but wishing to move location, there are a number of agencies that can provide assistance. Donald McLennan, a director at Millennium Performing Arts, says that the relocation agency Gateway to London (GtL) was helpful when it moved to Greenwich from Belsize Park in north-west London. ‘We were in shared accommodation and obviously, to develop our business as a performing arts school, we were always looking to expand our own premises,’ observes McLennan.

An adviser from GtL introduced McLennan to Greenwich and, since moving, Millennium now has larger premises and can enrol 60 to 70 students a year as opposed to 45 to 50 previously. Moreover, there is the added bonus of the 2012 Olympics. ‘This borough is going to change dramatically,’ predicts McLennan.

Going for gold
Kevin Cook, the MD of EMS, which provides temporary electrical and plumbing services, has a similar story to tell. ‘We’ve moved from Blackheath to a warehouse in an industrial area in Thamesmead. It’s 10,000 square feet and it’s all in one location, whereas before
we were spread over a large area. Now we have everything together, which is more efficient.’

The company has sales of £15 million, with 130 employees. ‘At the moment we are working on numerous large projects in London,’ says Cook, who also has offices in Manchester and Bristol.

One of those projects includes helping to build the Olympic Village. Overall, it’s thought that around 7,000 direct contracts will be required to deliver the Olympic Games, which will spawn around 75,000 business opportunities further down the supply chain.

Gareth John is the MD of Invest Thames Gateway, which has been set up to simplify things for those who want to invest in the region, eliminating the need to go through three separate regional development agenies (SEEDA, EEDA and LDA). He observes that the huge development site alone should create a business bonanza for SMEs, though the Olympics is by no means the only story in the region.

Benjamin Smart, the regional manager for Business Link London, agrees that there are rich opportunities but notes that companies need to get their act together if they are serious about bidding for public sector contracts of any kind. ‘Eligibility depends partly on how a business is set up. So it will need to have health and safety policies, its own PAYE system and if it can produce a set of audited accounts, that may actually help. It needs to show it is an established business.’