Written evidence submitted by Retail Asset
and Deposit Products, Barclays Bank (TIC 85)
Following our conversation last week I have set out
some thoughts on the financial challenges faced by SMEs in the
technology sector. It is helpful to segment the evolution of these
companies into three phases:
- (1) proof of concept;
- (2) commercialisation; and
- (3) profitability.
In stages (1) and (2) the risks of failure are high
and the funding model remains an equity one. This equity is obtained
from a number of areas including personal resources, friends and
family, wealthy entrepreneurs and specialist tech and VC funds.
The role for bank funding (ie loans and overdrafts) really only
applies once the business moves into stage (3) and this is where
Barclays continues to be very active.
For a bank to provide debt facilities it is important
to see and buy in to sustainable and profitable cash flows into
the medium term. This is where a banks judgement and competitive
forces come into play. Where technology companies differ from
other businesses is the intrinsic value placed on them. The real
value lies in the IP embedded in the company but the value placed
on this can vary significantly from one investor or bank to another.
Whilst technology start-ups and businesses will always
face challenges getting their ideas commercialised and funded
we continue to believe in this sector and look for ways to nurture
growth. Some examples and ideas:
- 1. We work with most of the major tech based
universities, directly or indirectly, to support business being
spun out of academia. In the early stages we are prepared to offer
free or discounted banking tariffs to ease pressures on cash flow
at this critical time. We can also advise on foreign exchange
rates and other factors that can impact a young business.
- 2. Enterprise finance guarantees. Last year
the government sponsored a risk sharing model with the banks and
this was successful in delivering more access to bank finance.
We would welcome an extension of this scheme.
- 3. A new form of funding could be a government
sponsored tech fund which could be used to part finance early
stage tech businesses where bank funding could then also be pledged
as certain hurdles were met.
Finally, we are very supportive of working with the
TSB and are already in dialogue with them.
Managing Director
Barclays Business & Managing Director
Retail Asset and Deposit Products
23 December 2010
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