UK tech start-ups call for more support

The UK’s technology start-up community is increasing pressure on the government to provide more support to help young companies survive the recession.

Among the suggestions to aid start-ups are: a one-off financial stimulus package; a reduction in red tape; improvements in employment law; easier access to government loans; and the fostering of a more entrepreneurial culture.

“If the government is putting in fiscal stimulus plans for other industries, why leave out start-ups?” said Brent Hoberman, founder of Lastminute.com and MyDeco, a furniture site. “The government must help to make the UK the best place for businesses to prosper,” he told the Financial Times. “Money is not the only answer. Give us a stable macro-economic environment: that is the most important thing the government can do.”

Matteo Berlucchi, co-founder of Skinkers, a London-based internet communications company, warned: “If the government does not take action in the next six months, at least half of [the UK’s] start-ups will die.” He called for measures such as VAT and National Insurance payment holidays, which have an “immediate impact on cashflow. Nobody is going to bail us out. But the government can help by extending the runway of these companies.”

The comments from Mr Hoberman and Mr Berlucchi follow the proposal in November by the National Endowment for Science, Technology and the Arts, for the government to create a £1bn fund for “innovative technology ventures”.

In November, Sherry Coutu, a member of Nesta’s investment committee, said withdrawal of venture capitalists from early-stage invest­ment had put pressure on business angel investors, making it “critical” government funding helps fill the gap.

Nesta’s proposal includes a super-fast broadband network and the creation of business networks to help the unemployed and foster entrepreneurship.

“In these extraordinary times, putting a billion pounds in for start-ups makes sense,” said Mr Hoberman. “Red tape is still a concern and raises costs. The government can do more about the [entrepreneurial] culture – about British attitudes to risk and failure. It could do more work on bankruptcy laws to make it less of a stigma in this country when you don’t succeed.”

Lord Drayson, the minister for science and innovation, welcomed Nesta’s report, but the government has made no commitment to the £1bn funding.

A recent report issued jointly by trade body Intellect, the British Computer Society and Microsoft, warned that small software companies faced “significant pressure” in 2009, and recommended that the government change its procurement processes to encourage smaller companies to pitch for business.

Alastair Mitchell, chief executive of Huddle, an online collaboration service, agreed. “The way into government is very hard when it really shouldn’t be,” he said, adding that the state would be the biggest buyer of technology services in the UK within two or three years.

Mr Mitchell also bemoaned the London Development Agency’s scrapping of its “Gateway2Investment” programme, which introduced Huddle to early investors, calling it a “desperate loss for the UK start-up scheme” and a “classic piece of short-termism” from the London Mayor’s office.

However, the challenges faced by tech companies are not entirely down to the wider economy. Many that started during the boom years with scant regard for revenue generation have been the first to feel the pain. “A lot of companies that may have a lot of traffic but don’t know how to monetise are going to go away sooner now,” said Dan’l Lewin, corporate vice-president at Microsoft’s emerging business unit.

Reshma Sohoni, chief executive of Seedcamp, an event held in London and across Europe for young tech entrepreneurs, said backers of start-ups that would in recent years have been allowed 18 months to start generating revenues are now being pushed to do so in two or three months.

Saul Klein, a partner at Index Ventures, said recently: “The best place to get money is from customers, that is the bottom line.”