The importance of reliable software for investment fund managers to accurately calculate credit ratings - which indicate the risk of a borrower not repaying a loan - was brought into sharp focus by the events 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.
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."