This is the second in a four-part series of articles looking at the issues currently preventing the Manchester tech scene from reaching its full potential. In this article, Manchester-based Nikki Scrivener, director and co-founder of Fourth Day PR, explores why money can be hard to come by for northern tech startups.

Regardless of how much of a hindrance our attitude to failure is, having access to the finance that gets ideas off the ground is an issue for many Northern tech firms. There are good things happening, with the launch of the Northern Powerhouse fund, the presence of GP Bullhound, as well as the overall investment in Northern tech companies hitting a 10-year high – with £326.9m invested in 2016 according to the first Tech North Investment Index report. But many say that money is still relatively hard to come by.

“There is some good start-up funding available in the North but it’s easier to get funding down South”, says  David Grimes, CEO of Sorted Group. “Tech companies have a high burn rate and need serious investment to scale. So, we need to be talking about bigger numbers than some of the start-up capital that’s on offer here.”

Daniel Keighron-Foster, who launched Manchester-based cloud consultancy Steamhaus, agrees with this. He suggests that many investors here simply don’t understand the levels of investment needed for tech businesses. But he believes that tech entrepreneurs can be equally naïve. “They often start their businesses wanting to change the world but end up selling their soul to get their businesses off the ground, because they’ve underestimated what it’s going to take”.

Martin Balaam, CEO of SaaS firm Pimberly, thinks it’s more a question of volume in the South versus the North: “You can meet 50 funds within a few days in London, something that would be impossible to do anywhere else in the UK. US funds also have a very limited grasp of British geography so most foreign funds just automatically head to London.”

More funding afoot

Things seem to be improving, with the launch of the Northern Powerhouse Fund by Maven, the Greater Manchester Investment Fund managed by Manchester City Council, and other regional funds springing up. “Historically there haven’t been funds specifically focused on tech companies in the region and currently none that can compete or have the same nature of ambition of funding as US funds”, says Paul Billingham. But this is set to change. Paul is himself involved in fund:tmt — a new joint venture between Knight Corporate Finance and Spark Impact – which will offer investments of between £0.5m – £2m.

CircleLoop CEO Damian Hanson agrees that things are improving. His first business, Oneiota – now owned by Sanderson Group – struggled with funding: “I still don’t think money’s easy to come by but it’s a million times better than it was when I was first looking. Initiatives like the Northern Powerhouse Fund are promising, but it will be interesting to see how they guarantee they’re getting the money into the right hands.”

Hanson also argues that the initiative should incorporate a 10% ‘punt’ fund, or a small percentage dedicated to higher risk investments. “It’s something that investors aren’t afraid to do in the US in the hope they’ll find the next Snapchat”.

But Rob Booth, CEO of global communications software firm Invosys, thinks that a lack of available finance can sometimes be used as an excuse to mask a bigger problem – essentially that there’s a lack of genuine innovation to warrant the funding: “There’s an illusion that there’s no money around but that’s simply not the case”, he says.

He claims some start-ups confuse doing something with doing something useful and that too much money has been invested in merely ‘reasonable’ ideas – meaning investors can be more risk averse if they haven’t seen good returns in the past.

You can read the first article in this series, ‘Modesty is hampering the success of tech in Manchester’, here. Keep your eyes peeled for the next part: ‘Do Manchester tech entrepreneurs sell out too quickly?’. This series is from the What’s holding us back? report by Fourth Day PR.