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Innovative tech needs innovative growth capital

31st May 2019   ·   Kash Moghul   ·   Insights

Technology companies are the UK’s economic powerhouse, growing 2.6-times faster than the rest of the UK economy. Indeed, the 50 fastest-growing UK tech companies claim an eye-watering 2,176% average growth rate and a combined revenue of £1.2bn, according to Deloitte.

This sort of activity is attracting a lot of attention. Britain is the leading destination in Europe for inward investment into the digital sector, attracting 50% more than any other European country in 2016, according to the UK government.

But the very strength of tech firms – their ability to outgrow equivalents in other sectors – is a problem when it comes to raising capital to fuel that growth. Tech is capital-intensive, so needs growth funding. This speedy development paradoxically puts banks off. They worry whether a firm’s expansion is unsustainable, or if it’s overtrading. Also, a high-growth firm may not have enough fixed assets as security to satisfy a bank’s credit committee. Their ideal fit is a business whose growth has flatlined, has a lot of fixed assets, and is generating steady cash.

If the banks don’t want to fund tech, then others do: Private equity love this sector, because they can see the potential. At the fastest-growing tech firms – scaleup businesses, with an average annualised return of 20% or more in the past three years – investment was 2.5-times higher than expected, based on the size of the UK economy.

However, a business may not want to raise capital through giving away an equity stake, but would rather do it through loan capital. That’s where we are able to help.

Indeed, ThinCats has seen a strong uptake in interest from tech firms and their advisers, a recent example being marketing analytics business BlueVenn.

 

Out of the blue

Some tech businesses are augmenting their organic growth with acquisitions, and ThinCats provided a £4m loan to marketing software firm BlueVenn to this end, alongside refinancing an existing facility and working capital.

It’s a data analytics business that collates consumer buying behaviours, and gives marketers the ability to unify online and offline marketing data into a single view. Its parent, Blue Group, had seen good growth, which ThinCats believed likely to continue, based on its analysis.

The acquisition strategy of MarketDeveloper, the target firm, looked like it could produce a potential market leader in the near future. Dave Sherrington, Regional Director, Business Development at ThinCats said: “BlueVenn is a strong, well established, business with a clear strategic vision. Like us, they are solutions focused and pushing the boundaries forward.”

That’s just what ThinCats intends to do: growth ambitions shouldn’t be something that potential funders view with suspicion. Indeed, if UK entrepreneurs are to compete on the global stage, we need to see such firms given the opportunities – not least, the capital – they need. This is a point that the Bank of England’s chief economist, Andy Haldane, has made, commenting that too often British industry was like a hub with no spokes – lacking the basic infrastructure to spread innovation.

To develop our most innovative businesses, we need innovative finance.

 

About the author

Kash Moghul, Director of Regional Business Development

Kash covers the Northern Home Counties and Essex, bringing expertise in ‘event driven’ finance – particularly MBOs, MBIs and acquisitions. Kash’s most recent experience comes from Allied Irish Bank, where he was head of new business for London and the South East, and secured a range of successful loan mandates.

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