Starting up is hard to do

Growing any kind of small business is tough – but finding money is not the greatest obstacle, according to opinions expressed at a recent conference organised by the Institute of Physics. The event, “Succesful SMEs, spin-outs and start-ups: support for technology-based small businesses”, was organised by the Business and Innovation Team at the Institute of Physics in London. Although funding is a problem – especially when looking to move from start-up into a viable, self-supporting enterprise – the correct attitude is just as important. Mike Powell is CEO of Pelikon, a manufacturer of flexible electroluminescent displays that was spun out of Cambridge Consultants in 1999. He was clearly brought in to turn the company into a real business. “You have to be obsessed or it is not going to work,” he said. “Only very strong-minded, self-opinionated people or people who do not fully understand the enormity of the enterprise they are engaged in succeed. Starting a company is an act of faith.” Tom Hockaday, managing director of Isis Innovation (wholly owned by Oxford University), spoke of the importance of spinout managers – who can take an embryo business and launch it. He likened their task to taking a rowing boat from shore to the open sea, where it would hopefully become an ocean liner. In such a case, it should then be captained by an ocean liner captain, while the spinout manager returns to find a new venture to take to the open sea. “Good spinout managers are very hard to find,” he said. “But if they have done it once, they can do it again.” Money talks The event did not avoid money completely. The first talk in the afternoon, by David McMeekin of the London Technology Fund (www.londontechnologyfund.com) explained that venture capitalists have the same drivers as most other people in business: “Fear and greed.” If a company wants, say, £5m in return for 50% equity, investors are hoping to recover £50m after several years – so the company must grow to be worth £100m. On this basis, management buy-outs and buy-ins have much less risk. The fund has £15 million to invest, and can invest up to £1.5 million in each venture in a series of tranches. He said there were eight stages in the application process and applicants deemed favourable should receive an offer in four to five weeks, and expect to complete the transaction in four to six months. For those not in London, it is worth remembering that most cities in the UK offer similar services. In North Kent, for example, there is the Medway Enterprise Business Partnership. While it does not offer money, it does offer free advice and networking opportunities. And while Government help is available – in the form of both R&D grants and tax credits –it can be a long process of form-filling and red tape to access the money. “It is easier to get money out of venture capitalists and customers,” said one delegate. There was also praise for corporate investors. These companies may well be the first buyers of the new company’s products – and might eventually incorporate the business into its own. The Business and Innovation Team at The Institute of Physics Pointers * People who start a new business can expect to make mistakes * There is plenty of free advice available – you just have to look * Money is available if the business plan looks right. Government money is there, but can involve lots of form-filling and red tape