Comment – The multimillion US gamble

Bristol-based Adaytum Software, a specialist in budgeting applications, recently announced its intention to become a US corporation, lured by $5.1m (#3.1m) from a group of US venture capitalists.

The emigration of yet another hi-tech company revives a perennial moan: why is it that UK investors do not put their money behind the country’s indigenous technology industry?

The British Venture Capitalists Association reports that, of the #4.1bn venture capital funds invested in 1997, computer, medical, health, communications and biotech companies got #690m – probably just enough to cover the average annual expense claims of venture capitalists in Silicon Valley.

Compared to the high-rollers laying out billion-dollar stakes at the West Coast silicon casino, British business angels are more akin to punters risking the odd fiver at the dog track.

The computer is largely a British invention that can be traced back 100 years to Charles Babbage’s Difference Engine and Analytical Machine.

Its modern reincarnation, Colossus, was the brainchild of mathematician Alan Turing, who led the code-breaking effort at Bletchley Park during World War Two.

Sadly, the government pulled the financial plug on Babbage’s prototypes, and Bletchley Park had to share its plans with US allies who had the money and materials to make them a reality.

BVCA chairman Clive Sherling says that the investment culture is changing, but it will take time. Now that Nasdaq has a European sibling, Easdaq, and rival European public markets are emerging, people are beginning to realise there are high returns to be made from hi-tech investments.

Sherling even has words of encouragement for the government. ‘Lowering capital gains tax for small companies was one of the best things they could have done,’ he says. Increased tax breaks for Venture Capital Trusts and Enterprise Investment Schemes are ‘small beer’ – in Sherling’s words – but then every little bit helps.

IT companies looking for investors view things a bit differently. In Adaytum’s case, it wasn’t so much that the company couldn’t get funding in the UK, it was more a case of securing its base in the much bigger US market.

Companies that have remained in the UK still have the bruises to show.

Gateshead-based QSP, for example, now uses Landesbank Hamburg as its banker, says communications manager Richard Hannam, ‘because German lending practices are more flexible.’

IT companies still encounter ignorance about what they do, whether dealing with their accountants or applying for government grants. It’s easier for Siemens or Fujitsu to get money to build a factory that it then closes, than it is for software companies to get money to hire programmers.

As Sherling suggests, there are optimistic portents to offset the Adaytum scenario but, as Hannam says, ‘We’ll like them even better when we see them happening.’

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