PracticePeople In PracticeAnalysis – Now the goldrush is over.

Analysis - Now the goldrush is over.

The days of the dotcom boom and bust are over. And many pundits would have it that the money pot is dry. No amount of digging around will uncover even the most meagre of funding to put into new innovative business ideas.

But this is not really the case. Bustling activity in the corporate finance departments of most accountancy firms contradicts the apparent reality.

And according to experts at Grant Thornton, the idea there is no investment to be found for start-ups is an illusion.

Historically it has always been difficult for start-ups to find funding.

And the onset of the dotcom gold rush probably did little to soften investors’ sentiments to funding start-up businesses.

Yet there is a great deal of money out there with investors proactively seeking potential investments, according to Wendy Hart, corporate finance partner at Grant Thornton’s Oxford office, which led the way in establishing GT’s corporate finance initiative.

In 1998 Oxford-graduate Hart returned from secondment at NatWest and suggested an initiative that would attract hi-tech businesses.

‘Grant Thornton traditionally targeted businesses between the scale of £2m and £50m. But that’s where everyone else was targeting too. So we made a decision locally to target start-ups.’

The initiative has developed into a specialist hi-tech group in Oxford that includes a cross-disciplinary team of 20 staff dedicated to advising technology businesses at all stages of their life cycle.

It has been so successful in Oxford that GT has decided to roll it out to its Edinburgh, Glasgow, London, Cambridge and Milton Keynes offices.

‘We’ve got between 35 and 40 technology companies on board and we’re getting new ones all the time.

The firm is basing any new initiatives at its offices in university towns and new business park developments because that, according to Hart, is where many of the most innovative and successful ideas come from.

Nevertheless, gone are the days when budding entrepreneurs and investors looking for a quick buck would join forces based on a whimsical idea written down on the back of a beermat. Entrepreneurs are all too aware of the difficulty in obtaining funding following the dotcom crash.

Dr John Wood, managing director of Site Intelligent, a Grant Thorton client which carries out intelligent analysis of website visitors and which began trading earlier this year, is a good example of how a simple innovative idea can become a marketable product.

Site Intelligence is in fact a product borne of Wood’s frustration. As a director of product management for a hi-tech company based in Oxford, Wood found he did not have the necessary tools to analyse the company’s customer online database.

‘It’s basically a good old-fashioned idea of marketing. We segment the database to tune into which customers are buying products. Old fashioned marketing and business savvy was forgotten in the internet gold rush.

‘We were post-internet bubble and I think we’ve been stronger for it.’ Wood got together with GT’s Hart last August to get help on a business plan before seeking external funding.

‘We don’t have an FD yet but it is was very important to demonstrate financial controls were in place and that there were knowledgeable people looking after us,’ explains Wood.

Since Site Intelligence finalised its first round of funding in December 2000, Grant Thornton has remained close to its side ensuring the communications channels remain open between the entrepreneurs and the investors.

Indeed, one of the investors is a former FD of a leading publicly listed company. ‘He keeps us on our toes,’ says Wood.

Unlike many of the start-ups of the past 18 months, external investment in Site Intelligence has been channelled straight into the products they sell and not sales and marketing. That comes next.

As for advice for up-and-coming entrepreneurs in the wake of the collapsed internet bubble, Wood suggests: ‘Keep your heads down and develop the technology or product. Think creatively and get to early revenue and definitely take the risk out. We were very critical of our own plan before going to investors. It also cuts down the time as well.’

Figures released last week from a venture capitalists’ confidence survey conducted by Deloitte & Touche reveal the number of VCs expecting a decline in the economy had fallen.

It has been the first sign of improvement in confidence for seven quarters. The shift is still low, but it shows positivity.

Quintin Barry, Deloittes’ corporate finance partner says: ‘While ‘green shoots’ have yet to show themselves, fears over a serious hard landing for the economy seem to be subsiding, with VCs recognising we are already in a slow-down period. The private equity market continues to be well funded and with the trade competition quiet, VCs will be keen to buy to capitalise on the low point in the profit cycle.’

Barry adds: ‘Over the past few years huge amounts of money has been invested into start-ups that went belly up. As a result there’s a more cautious approach.’

Investors, he says, are spending more time in looking at the market and proposals. ‘They are much more selective,’ he adds. But funding is much larger now. ‘Start-ups can now expect three times as much money as average start-up of a year ago.’

Barry also puts the rise in confidence down to the fact that a sense of realism has re-entered the market. ‘Uncertainty in the market has turned into certainty that it’s hit bottom, so things can only go up. Companies can now be bought at sensible prices,’ he said.

A spokesman for venture capital house MTI Partners, which did not fall foul of the internet gold rush, confirms the trend. ‘We have substantial funds ready for investment. We have continued to invest and are seeing quite a good range of quality of opportunities. Pricing is more aggressive now. It’s a reaction to the community of overpricing in past two years. The whiplash effect,’ he says.

So it would seem the dynamics of investment have changed.

Baker Tilly overtakes Horwaths:

Size matters say GT and BDO

The 2001 Top 50 can be found on page 24.

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