Ask a venture capitalist or entrepreneur to describe the UK technology scene, and the answer will be it has a "dumbbell shaped problem".
There is plenty of money available for very early-stage companies, from angel investors and serial entrepreneurs recycling their gains, and there is appetite for funding so-called "growth equity" companies that are already profitable and very close to being sold or floated on the stock market.
But in the middle, where young, unprofitable companies are trying to raise funding rounds of £5m or £10m, interest wanes.
Mike Reid, partner at venture capital firm Frog Capital says investors are loathe to tie-up their investments for long periods at this mid-stage, given the uncertain economic outlook.
"Investors remain very nervous about illiquidity," he says. "Pension funds and family offices value the option of changing their mind and getting their money out, but venture capital investments don't offer that. There are companies that have been funded over 10 years that have still not exited."
Frog has funded businesses such as Rated People, the website for tradesmen, and Ecomera, which provides software to online retailers, but benefits from the backing of the multi-billionaire German-Spanish Engelhorn family, allowing it to take a longer-term view.
Some technology sectors, such as ecommerce, are finding funding. Online shopping companies like Farfetch, Stylistpick.com and Fantasy Shopper have raised money in the past few months. But hardware and fundamental technology that require bigger investments have struggled.
Icera, a start-up making mobile phone chips, tapped the venture capital community for more than $250m, and was still unable to successfully break into the market. The business was ultimately bought by Nvidia, a US rival, for $367m, little more than the original investment.
"If you want to create a company like that from scratch you can't do it through the classic venture capital model because it takes 15 years," says Stan Boland, founder of Icera, who had envisioned a $1bn float for the company. "We were insane to do what we did."
The $10.3bn Autonomy acquisition by HP aside, the lack of high-profile technology deals in the UK has also left investors uninspired.
"The track record for European VC investment has not done well," says Jos White, a former founder of MessageLabs, the UK security company that was acquired by Symantec, and now partner at Notion Capital, the venture capital firm. "Most people have made marginal returns, 2-3 per cent internal rate of return â€“ it's just about kept up with inflation. There are quite a few funds from the early 2000s vintage which really aren't performing well."
In 2010, the UK government pledged to boost tech investment through a £200m innovation investment fund, focused on life sciences, digital and advanced manufacturing businesses. But venture capitalists complain that the money has been mainly directed at companies already well-supplied with funding.
Investors are still willing to back teams with track records. The co-founders of Playfish, the online games company sold to Electronic Arts for $400m in 2009, have found a number of venture capital companies already angling to finance a B round for their new games venture Mindshapes.
"It really helps that we know everyone and we have the track record behind us," said David Begg, chief executive of Mindshapes. "But if you are an unknown team starting out it is really hard."
Over the past five years, the number of technology companies listed on the LSE's tech sub-index has nearly halved to 81. The technology sector now accounts for less than 1 per cent of the LSE's value, compared to around 8 per cent for the NYSE and 47 per cent for Nasdaq. Following the sale of Autonomy, Sage is the only remaining software company in the FTSE 100 index.
There have been no technology floats in London since the spring of 2010, when EMIS, the healthcare software provider, and Promethean World, the educational technology company, listed. Promethean shares are still languishing at less than half their IPO price of 200p, deterring many others. Skrill, the online payments company, pulled its IPO last year, and Sophos, the UK's largest IT security company, opted for a private equity deal after two unsuccessful attempts to float.
Tech companies and analysts often blame London investors for lacking imagination and courage with technology investments.
"Fund managers bemoan the dearth of new blood in the UK quoted technology sector but are unwilling to pay a growth multiple for a growth business on float, instead demanding a discount because of the lack of track record," says Jonathan Imlah, technology analyst at Collins Stewart.
Bankers point out, however, that funds are still struggling with existing portfolios of low-growth technology businesses and are unwilling to invest in anything new until they have cleaned out the old.
Simon Russell, technology banker at Hawkpoint, says: "Many City funds are frankly bruised from the underperforming tech and internet IPOs they've bought over the last couple of years and also from their painful legacy holdings of struggling ex-growth license software businesses."
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