Opinion

Now is the time to seek funding



Ian Mitchell

City briefing

The greatest hurdle fledgling technology companies face is winning over enough investors to back their ideas with the cash they need to develop them.

No matter if there are missing pieces in the management team (as with many dotcoms), the target market is immature (such as ASPs) or it is uncertain whether the technology has a long-term future (such as Wap content). All of these issues can be addressed by companies as they mature, providing they have the cash in place to be flexible about their plans.

Venture capital is vital for anyone with a technology idea they believe can be built into a business. And, according to the latest figures produced by PricewaterhouseCoopers, there has never been a better time to be looking for private funds.

The PricewaterhouseCoopers survey shows that last year euro8.4bn was raised by venture capitalists for technology investments throughout Europe, but only one third of that was actually invested in this period. This means that in 2000 venture capitalists have euro5.6bn to invest before they raise a penny of new money - and record sums were flowing into the industry in the first quarter of this year.

The breakdown by investment category shows which parts of the IT industry are "hot". Surprisingly, e-commerce investments accounts for just euro1.2bn throughout Europe, with 19% of that invested in the UK.

PricewaterhouseCoopers says private equity investors considering investing in IT firms are looking for quality management teams, good chief technical officers, barriers to entry to the chosen market and an easy exit for investors - usually through an initial public offering or trade sale. To that I would add intellectual property, management with a track record of building a company and credible non-executive directors. These factors make the decision much easier for investors.

I previously wrote in this column that the industry needs a period of market stability to give investors the confidence to back technology companies at both the private equity and IPO stages. We have had that stability and talk now is of September onwards being a bumper time for flotations, including many of those postponed earlier this year.

As for technologies, PricewaterhouseCoopers suggests that companies involved in delivering the third generation of mobile telephones and those in logistics will do well, to which I would add semi-conductor design companies.

Essentially, though, the figures show that there is plenty of private equity money available for the technology sector. This does not mean that private equity investors will relax their investment criteria and back companies that do not meet their requirements. But with the right idea and team in place there has never been a better time to look for funding.

Ian Mitchell is an ITanalyst with stockbroker Beeson Gregory. His opinions should not be construed as investment advice.

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This was first published in June 2000

 

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