Poor signals and weak connections in the Tech Sector

August 19, 2021

Where would we have been without technology during the pandemic? From Zoom calls and Slack messaging to streaming of entertainment, digital progress enabled us to stay working as best we could and kept us sane under lockdown. Nonetheless, even tech companies have felt the pressure of trading through Covid and none more so than those in the earlier stages of their life cycles.

For every inexplicable, eye-watering valuation as yet another unheard-of tech business changes hands, there are several struggling to manage their monthly burn rates as cash from early backers wears thin. Of course, there are notable exceptions, but by and large the last 18 months have been terrible for fundraising: hard to get in front of new investors; not being able to demonstrate new hardware and software in person, particularly on the B2B side; cancellation of critical exhibitions and trade shows. These are all important factors driving new business development and revenue growth, both vital to proving a concept and raising new money, from Seed to Series D.  Even at the higher end of that spectrum, many companies still have very low revenues, no profits and may employ hundreds of staff.

Short term challenges are clearly the greatest hurdles to these businesses, since the long term outlook is generally very good. It is impossible to overstate the importance of the technology and telecoms sectors as drivers of global economic growth as they open new channels for commerce, support product innovation and help the smooth running of our everyday lives. These sectors are also inextricably linked, changing the ways in which we consume and apply information, entertain ourselves and communicate with each other.

Supported by world leading university research, an ambitious entrepreneur base and a wide range of government initiatives in recent years, the UK has earned its place at the top table of global technology development and commercialisation. London is a substantial hub, as home to Silicon Roundabout, Canary Wharf’s Level 39 and countless incubators, not to mention a well-established tech venture capital community. Other major cities, notably Bristol, Cambridge, Manchester and Cardiff, have produced several impressive digital start-ups, some of which have already been snapped up by large US or Asian corporates, while others are growing fast and on their own acquisition trails.

Nonetheless, the impact of Covid and the pace of change and growth in these sectors requires extraordinary agility and vision from those running businesses. Some may be established companies which have already passed through several phases of ownership. Others  may have even been restructured and rescued more than once, showing resilience and an ability for reinvention in an industry with seemingly endless possibility.

Obvious areas where tech businesses may begin to be more proactive in navigating through short term, potentially terminal challenges include ensuring all ‘figures’ are up to the toughest scrutiny by potential (and existing) investors, e.g. financial content for Information Memoranda; reviewing efficient structures for founders and directors; seeking support for tech grant applications; sourcing advice in communications and negotiations with lenders; reviewing R&D allowances; clarifying recognition of complex revenues, as well as the treatment of Intellectual Property and intangible assets; checking the structures of strategic alliances, major contracts and licensing agreements; and detailed scoping of scaling strategies.

So many tech businesses deserve to succeed: founders may have worked extraordinarily hard with great sacrifice for long term gain; new processes, IP and hardware may be genuinely groundbreaking and make a difference to people’s lives. Occasionally, ‘inventor-founders’ need help to swallow hard and make tough decisions, including those about day-to-day control, to safeguard their companies. Without realistic business sense, both owners and progress itself may be all the poorer.

Written by David Buchler, Chairman and Founder of Buchler Phillips, the UK’s leading independent corporate recovery, restructuring and turnaround firm.



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