The importance of reliable software for investment fund
managers to accuratelycalculate credit ratings- which
indicate the risk of a borrower not repaying a loan - was brought
into sharp focus by theevents at Northern Rock.
When the US sub-prime mortgage market crashed because borrowers
defaulted on their loans, previously confident banks stopped
lending to each other, and Northern Rock's lines of credit, which
were sourced from US banks, dried up.
If
fund managers had better calculated the probability of
companies defaulting on loans, the situation at Northern Rock may
have been prevented.
One UK company that has developed software to enable fund
managers to better calculate the probability of a loan not being
paid back is investment software company
Sutherlands
Edinburgh.
The PBCam product, which is based on a software-as-a-service
platform, uses sophisticated mathematical modelling to help deliver
credit ratings. Fixed-income brokers and fund managers are its main
users.
Alastair Baillie Strong and Gabrielle Mowat founded Sutherlands
in May 2006, and in that time the company, with a staff of 10, has
gained clients including Charles Stanley Stockbrokers and several
insurance companies.
"A key problem for fund managers and banks remains calculating
the risk that a loan will default," says Strong. "Standard and
Poor's and Fitch and Moody's dominate credit ratings, with 80% of
the market. Our strategy is to target the smaller niche agencies
that hold the remaining 20% and capture market share by way of our
value add products."
The core product was developed out of Strong's 2001 MSc project
in operations research at Edinburgh University, where he is now a
lecturer. Strong says one UK high street bank is trialling the
software, but breaking into the US market is key in 2008.
Securing backers
But the path to success has not been easy. Starting up a
technology company in the UK was difficult, and securing investment
and the interest of UK backers compared to US ones was an initial
hurdle.
"When it comes to UK investors, people are generally looking to
invest in technologies that are already proven - a 'me too'
investment," says Mowat. "In the US, investors are more keen to
take a chance on new technologies in the hope of being first in a
new market."
For IT professionals thinking of starting their own software
company, Mowat says it is important to be sensibly capitalised
before seeking investment from other backers.
"At the end of the day, investors are not interested in how good
your software is, they are interested in making a return. You need
to walk into a pitch knowing your figures and show that you can
keep a rein on the purse strings, as well as the technical
details."
Mowat says getting the first backer is vital, and might even
mean giving up a percentage of the company.
Don't be precious
Another piece of advice that Strong offers to software
developers is not to be precious about making changes to your
software. He says developers can often work very hard for months
creating a software application without end-user participation,
which is where the product can fall down.
"Getting feedback early on from fund managers who used the
software was necessary in being able to refine it and make it
better. You have to be willing to look at how the software will
actually be used, rather than how you think it will be used - there
is often a gap," says Strong.
Hire the right staff
But perhaps the most important thing to get right when starting
your own technology company is hiring the right staff. Sutherlands
works closely with students at the University of Edinburgh and
offers them work over the summer, involving them in software
development projects.
"Software development is an extremely rare skill and finding
people with the right aptitude can be hard for a start-up," says
Strong. But by working early on with students who show an interest
and an aptitude, a small company can cut down the hassle of
recruiting, he says.
UK has more fast-growing technology
start-ups
The UK had more companies than any other EMEA country in the
2007 Deloitte Technology
Fast 500 EMEA list of the year's fastest-growing technology
companies, with 91 firms in the top 500. Its nearest rival was
France, with 68 companies.
"The UK led again this year in terms of overall numbers, closely
followed by France," said Eric Morgain, Deloitte's partner in
charge of the Technology Fast 500 EMEA.
"Good technology people are becoming harder to come by. Finding,
hiring and retaining qualified employees is the greatest
operational challenge for just under half of CEOs, significantly up
on previous years."