Greater support for 'phase two' tech companies would improve attractiveness

Greater support for 'phase two' tech companies wo...

One thing to improve the UK’s tech sector attractiveness would be having a greater focus on supporting ‘phase two’ technology companies

Tim Kay


KPMG in the UK


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  • "If we could do one thing to improve the UK’s tech sector attractiveness, it would be having a greater focus on supporting ‘phase two’ technology companies"

Business creation has fundamentally changed. Today’s founders and entrepreneurs need little initial investment and infrastructure to build a minimum viable product and get to market. 

This is exciting and empowering for the UK as we have a strong heritage of generating ideas and this is something we should (and have to) continue to do.

What I believe is a cause for concern is the widespread preoccupation with the start-up phase of business. The UK’s ambition should surely not be to create a swathe of technology start-ups. Rather, we should want to create group of world class, industry-defining businesses that attract talent, investment, and employment and place the UK at the forefront of the rapidly changing face of the global economy. Whether these have revenues of £5m, £50m or £100m is irrelevant; all will be fantastic businesses that we would be proud to call British.

A good ideas is not the same as a viable business

My issue is that theease of creating a business, coupled with the growth stories of the likes of Instagram, put the focus on the wrong measures of success. A good idea or clever product isn’t the same as a good, long-term, viable business. 

This naivety, wheresuccess is measured by creation of a product or the achievement of externalfunding – and not by sustainable business models, longer term revenue growth,employment and profitability - is holding back the success of the UK technologysector.

I believe that thisnegatively impacts those companies in ‘phase two’ of their growth cycle, which see increases in the required levels of staff, infrastructure, product development, sales and marketing, customer support, and international operations, and who are unable to find the talent or investment they desperately need.

Beyond the next Google

Counter-intuitively, I think this focus on start-ups has also led to a fascination of trying to create the next Google or Facebook. While everyone would applaud if the UK produced companies of this significance we must be careful not to only invest in companies that have the potential to scale to this size.

Indeed, we must also not only measure the success of the UK technology sector by the number of multi-billion pound companies we produce over the next ten years. Would it really be so bad if we produced a raft of world-class multi-million pound ones?

To support this next wave of UK successes, there needs to be a mixture of private and public sector help, in both financial and non-financial terms.

Start-up tech businesses are well-supported – from having access to seed funding and well-targeted tax policies to a growing ecosystem that is ready to help.

A change in private sector thinking

However we need to make sure that for those business looking to get to the next level there are appropriate public policies in place to support increased employment, talent acquisition, international expansion and retention of cash at critical points of their growth.

The private sector must also support these businesses and this is not just down to the continuing strengthening of the capital markets at all levels. Big corporates must become more comfortable with using products and services from these companies, understanding that they will have to help the development of the product and not just ‘buy it off the shelf’.

In addition, they must be ready to look at their own markets and see how corporate venturing with these early stage companies may help secure their own long term survival.

Long term vision

This investment and support needs to be with a long term vision. A short term focus will only result in lost investment, talent, innovation and growth. This will condemn the UK to another cycle of innovation without commercialisation as emerging and established economies build world class companies in new industries, on the back of ideas generated in the UK.

The potential of this long term vision is being demonstrated with Graphene, the new super-material with the potential for a wide range of commercial applications.

Originally isolated by University of Manchester physicists, the challenge is to nurture and develop this discovery for a sufficient period of time for it to become commercially valuable. While you can argue we are falling behind the likes of the US and China in the race to develop commercial solutions for the product we are making significant investments.

Finding the 'secret' of success

The new £61m National Graphene Institute in Manchester will open in 2015 and it is expected that the UK will receive a large portion of the €1bn investment fund announced by the European Commission focused on commercialising Graphene.

I believe that if the parties involved in creating the UK’s future technology businesses looked to these second stage businesses as successes, everyone would benefit and we could stop looking to the US and elsewhere to find the ‘secret’ of success.

Tim Kay is High Growth Technology Senior Manager at KPMG in the UK

© 2016 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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