Government Demand Side Initiatives needed to stimulate UK Technology Entrepreneurship


08-11-2000

Extracts from submission to parliament's Bluestone IT Advisory Committee and a seminar on Opportunities in Technology Start-Ups by Jason Purcell, chief executive,



It is time for the Government to focus on demand side issues in its attempts to foster an entr

epreneurial culture in the UK, rather than on the supply side, which has already seen significant private sector initiatives, according to Jason Purcell, chief executive, FirstStage Capital, the corporate finance house specialising in early stage funding for technology businesses. The prime inhibitor to the emergence of a fully fledged start-up culture is the failure of the majority of would-be technopreneurs to be sufficiently investor-ready to attract the substantial capital available.



Need to focus on demand side issues



A focal point is required - such as a public sector- run Technology Network (TN) - to educate entrepreneurs and technologists on what they need to do in order to encourage external investment in their ideas. This would include issues such as how to present to potential investors, the preparation of a business plan, the delivery of relevant information in an easily understood format and a framework for accepting the necessary ceding of equity.



Moves to encourage investors, while helpful, are not in balance with demand side needs. Much new capital has been raised for investment in the UK in recent years, and research by Professors Colin Mason and Richard Harrison of Southampton and Aberdeen universities respectively shows that business angels alone have four times more money than they are able to invest in technology start-ups.



While the Small Business Service (SBS) is laudable it is too broadly based and too cumbersome to recognise the special needs of the technology market which is characterised by speed and agility. A properly constituted TN, geared to the demand side but working with trade associations, private sector groups and business angel networks/venture capitalists could leverage off progress made by the banks, while communicating government services delivered through the SBS more clearly.



To paraphrase one of the seminar speakers, venture fund manager Martin Rigby, it is better to be a rich non-exec of a multi-billion pound company than a poor entrepreneur on a self deluding trip.



Education or investment - the government's choice



Government should aim to develop a seamless access to funds, from business angels through to IPO and encompassing all points in between. The end result should be co-investing, sequential investing or referring dealflow among business angels and VCs, which a Technology Network could help stimulate alongside Regional Development Agencies and the SBS.



It is arguably far more productive for governments to invest in education than replication. When research says that money is available, the signal is for government to help technopreneurs to access it - for example by creating a US-style sophisticated investors category and by easing the rules on forming syndicates. The government has already been helpful on taxation for private investors and corporate venturers.



Professional advisors become stakeholders



It may now be time to create a climate where, as in the US, professional advisors become stakeholders in fledgling businesses. The establishment of growth and innovation units at UK banks, with HSBC in the vanguard, is one of the first serious steps being taken in the UK to emulate the US's virtuous circle of technology entrepreneurship,



As Martin Rigby outlined at the Technology Start-Ups seminar, a small number of Silicon Valley law firms have in-house venture funds and share in the risk of their clients. If this happened in the UK it would be the most positive sign of all that the spirit of technology entrepreneurship had arrived.