IT startups need government help

Link: Entrepreneurs frustrated by government

Seed capital now represents only 1% of total funding across all sectors as investment companies focus on ploughing funds into existing ventures, the PwC Money for Growth study found.

But Keith Arundale, European venture capital leader for the global technology industry group at PwC, warned that while the UK’s entrepreneurial culture had improved significantly over the last two to three years, far more could be done to help turn business ideas into reality.

‘The big problem is money to get things started up. A lot of current government funds are aimed at the SME sector. Developing funds specifically for technology companies would be helpful. We need more incentives specifically in that area,’ Arundale said.

Investments in technology firms fell by a substantial amount to €5.3bn in 2002 – less than half of the peak of the dotcom boom time in terms of the total amount invested, Arundale said.

‘There’s plenty of money around but there’s been a big decline in the funds dedicated to the tech sector. That’s pretty bad news for hi-tech entrepreneurs.’

Those in the software sector still getting finance are those with a proven product, revenue stream and top quality management. Technology areas including Wireless LANs, broadband, internet security applications and smartcards are amongst those generating the most interest among the venture capital community, Arundale said.

But while investments in technology startups have continued their downward trend, the number of investments in the technology sector during 2002 was down only eight per cent on the previous year and the number of companies financed increased by 2% to 3,950.

And while the UK led the way in terms of investments at the venture capital stages, that figure was down 50 per cent on the previous year.

‘The trend has been downwards but things are still happening. But we won’t see a big increase in investment until larger organisations start spending money on IT. CIOs are still seeing their budgets cut,’ Arundale said.

But it is not all bad news for entrepreneurs as the VC community becomes much more focused on technology areas of interest, and does a better job of providing hands on advice, Arundale said. ‘VCs are focusing much more on market rather than technology risk.’

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