Confidence re-enters venture space

11 March 2005

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Young UK technology businesses are anticipating a return to the boom era of the late 1990s in the next three years, with new research showing that two-thirds of small high-tech businesses predict overall growth of 50% or more between now and the end of 2007, according to a Grant Thornton Survey. A further 28% expect growth of up to 50% over the same period. The study found that two-thirds of respondents expected organic growth to be the main driver of business expansion. Just under half of those questioned thought growth would come from alliances (mainly with larger corporations) and geographic expansion (predominantly into the US). Some 15% of respondents saw acquisition as key, whilst 10% thought diversification would yield results. The research surveyed 65 IT companies in the UK with a turnover between Â£1-10m and was carried out in December 2004 by business and financial advisers, Grant Thornton, in conjunction, Nabarro Nathanson, MTI Partners and Silicon Valley Bank. The survey also looked into the medium-term plans of the businesses, with 48% of those questioned expecting an exit during the next three years. Two-thirds of these businesses anticipated a trade sale, compared to 27% considering an IPO. As expected, the greatest threat posed to small companies was competition from larger companies and access to customers, along with retaining key people. Some 93% of respondents regarded the loyalty of their employees as a key issue for their business. When asked what the government could do to assist them, around 40% of companies were happy with little or no further intervention, showing that they are happy with the current system of R&D tax credits and grants. A third said further tax credits would be useful. The survey found that business angels initially financed the majority of companies who said that they plan to seek VC funding in the future. Two-thirds of companies gave cost as the critical factor when choosing a VC partner. Interestingly, 27% of companies said they were put off using a VC because cheaper funding is available from other sources. Beyond retained profits, nearly 40% of respondents said that they envisaged their funding needs to be in the region of Â£1-5m over the period.