What are the challenges facing UK tech companies looking to scale?

Funding | Reports | Sponsored | Technology

The UK is now home to more than one-third of Europe’s fastest-growing tech companies. It’s an impressive achievement, but could that proportion be even larger if access to funding was improved?

Tech businesses face unique financial challenges because of the high research and development costs associated with proving their business models. Where traditional firms can offer a single product or service before steadily scaling-up, tech companies need large initial investments due to the cost of building their technology. Even if they prove this technology, they have limited funding options when it comes to scale-up and growth.

The government’s digital strategy boasts that the UK’s digital sectors received a record £1.57bn in equity finance in 2015, and although it’s crucial that seed investors and private equity firms continue to support start-up growth, this figure overlooks the next step in the process. Where can tech businesses turn if they’re ready to grow but don’t want to dilute equity any further?

Traditional banks aren’t interested because these companies may be loss-making or demonstrating minimal profitability. Many alternative lenders also want to see profitability, with several years of financial accounting to back this up. For BOOST&Co, the answer is venture debt because the product can support firms that are pre-profit but have high potential for growth – as many tech businesses do.

“The challenge for these businesses is to know who to go to for funding,” says BOOST&Co’s principal Lauren Couch, who leads the lender’s Bristol office. “It’s our job to educate the market and ensure they know that there is another option, beyond delaying growth or sacrificing equity. We want to encourage a collaborative approach with start-up lenders, so that UK tech companies are supported at every stage of their growth journey.”

BaseKit is one of the South West tech businesses that have benefited from BOOST&Co’s collaborative vision. Basekit first secured support in 2008, via the Seedcamp start-up accelerator and incubation programme, which enabled the firm to set up its first office in Chepstow. Fast-forward a few years and a £2.5m venture debt loan from BOOST&Co enabled BaseKit to expand its reach within the telecoms sector and invest in sales, marketing and product development, advancing the company’s growth.

The tech business community needs to see more of this kind of collaboration. Seed and start-up investors must work with growth lenders like BOOST&Co so that the UK’s tech companies don’t simply dominate Europe, but become leaders in innovation and growth around the world.

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