An investment gap is hindering UK start-ups

A thriving technology sector is a key driver for success against the background of a weak economic recovery and an ongoing debate about the relative values of the service economy and declining manufacturing base of the UK economy. The UK has no shortage of profitable technology companies. But for every Autonomy and Monitise there is a host that remain small and do not go on to become major global competitor, or do so as part of a larger and better resourced parent rather than consolidating the market themselves.

We need to become better at “breaking through” the UK market. In particular, there is clearly an investment gap. Early stage investors often don’t have the stomach or deep enough pockets to take their investments to the stage where they can reach the sort of critical mass that will make them of interest to the major venture capitalists or institutional investors who can take them to the next stage. And private owners now have no access to either debt or equity finance. Clearly some new thinking is required.

An interesting model is emerging which is particular to the UK due to the relative success of its smaller company Aim and Plus markets, which even in current market conditions are able to raise modest amounts of capital. Bernard Hulme, former chief executive of FTSE 250 company Tadpole Technology, which was acquired by General Dynamics in August 2005, and telecoms entrepreneur Jack Kaye have been working on exactly this problem. Both have decades of experience in founding, building and selling substantial UK-based technology companies and operating in global markets. They are taking a very active approach – using their Plus-quoted vehicle Technis to deliver to the management teams of profitable and nearly profitable niche technology firms the working capital, management expertise, synergies and incentives they need to grow and increase their value.

Similarly, Michael Jackson, former chairman of Sage, one of the most successful UK technology success stories ever, became chairman of Access Intelligence in late 2008. Access Intelligence provides growth capital and strategic support to build market leaders in the Saas Solutions sectors, specifically software for the PR and media markets, procurement, compliance, legal software and managed services.

Technis intends to build up a portfolio of acquisitions at the rate of two or three per quarter, primarily using equity in order to preserve cash for working and development capital. And in a world awash with worthy academic reports and handwringing from government about poor economic performance, this smacks of good old-fashioned common sense, sleeves-rolled-up entrepreneurship. It is all the better for it.

Julie Meyer is chief executive of Ariadne Capital, founder of Entrepreneur Country, a Dragon on the BBC’s Dragon’s Den. Technis and Access Intelligence are portfolio companies of Ariadne Capital.