Direct Investments

It’s scaling up not starting up which is the challenge

Scaling up and not starting up is now the biggest challenge for technology businesses, according to the CEO of Mercia Technologies PLC one of the most active investors in UK technology.

Speaking to an audience of more than 200 tech companies, investors and advisors at Manchester Town Hall, Dr Mark Payton said that the UK was one of the most successful in the world at creating start-ups, but ranked only 13th in its ability to scale them. He said part of the problem was the lack of ‘patient capital’, especially for businesses based in the regions.

“Scaling up is the real struggle,” he said. “Rather than holding businesses back, we need to work with the owners to build value over time. That doesn’t mean five years, it may take seven to 15 years to create a sustainable business. More investment is now becoming available for early-stage businesses, but finding scale-up capital is still very difficult.

“However the issue is not simply with funding at different stages, there are also significant challenges for tech business located outside of London. Around £3bn of investment capital is deployed in London and the South East but as you go further and further towards the North, the amount decreases dramatically. This isn’t a reflection of the quality of ideas, but the lazy way in which capital is deployed.”

The event, ‘Celebrating Tech 2017’, brought together some of the most promising tech firms from the UK regions and heard from leading experts in their field including Dr Stephen Little, CEO of Premaitha Health plc; Tom Ilube, CEO of Crossword Cybersecurity; and Dr James Wilkie of the University of Birmingham.

Mercia focuses on investing in tech businesses in the Midlands, North of England and Scotland and its investment model allows it to provide funding at every stage of development. Dr Payton said Mercia’s activities corresponded to five of the ten pillars in the government’s new Industrial Strategy announced this week, including investing in innovation, supporting growth across the country and developing world-leading businesses. Following its acquisition of Enterprise Ventures last year, Mercia now has six offices and 63 staff across the UK regions and Scotland.

Dr Payton said that one of the biggest changes within the UK technology sector was the quality of people it was now attracting. Despite some political surprises in 2016, he felt confident about technologies’ global future.

“High-calibre managers used to shy away from early-stage businesses but that has changed, as experience from our own portfolio shows. We are now building some very impressive management team and boards on our portfolio companies,” he said.

“While the political focus is moving away from globalisation towards a more local agenda, in the era of Trump and Brexit, I am confident that the young UK entrepreneurs coming through will grab the opportunities and find ways to benefit from the disruptions ahead.”

You can watch interviews taken from the Gala Dinner in the video below.