By Daniel Hunter
The 50 fastest growing UK tech companies generated over £672 million in total annual revenues, provide jobs for over 5,000 people and recorded an average five-year growth rate of 1382 per cent in the year 2012/13, according to the Deloitte Technology Fast 50.
Almost 9 out of 10 (88 per cent) of CEOs surveyed reported expectations of growing at a somewhat higher or significantly higher rate compared to the previous 12 months. Three years ago ‘managing or forecasting cash flows’ was the number one financial challenge, but, in 2013, only one in 10 companies reported the same concern.
The greatest financial challenge for companies in 2013 was ‘financing investment in growth or Research & Development (R&D)’ cited by a fifth of Fast 50 companies. Three years ago the focus was on managing cash flows and surviving, but now the focus is on financing for growth and R&D. Of those CEOs raising capital, almost one in five are looking to fund geographic expansion.
Nearly half of the UK Fast 50 winners identified North America (46 per cent) as the foreign markets offering the best potential for growth; Western Europe (28 per cent) came second. No other region was identified by more than seven per cent of companies.
David Halstead, Deloitte partner leading the UK Fast 50, said: ”Britain’s technology companies have faced a challenging five years, even though the winners have grown significantly faster than the economy over the past five years, but they cannot, and do not, operate in isolation.
"In line with the wider economy, the entrants reveal a challenging five-year period, but with a bright outlook. We have seen an increase in software companies from 13 to 16. Internet companies are second with 12 in this year’s ranking, compared to 13 in 2012.”
This year’s winners, Infectious Media, are based in Clerkenwell and since 2008, its revenue growth has averaged 9,774 per cent. Martin Kelly and co-founder Andy Cocker launched the company in 2008, after careers in large traditional media buying agencies. Real time advertising exchanges were gaining traction in the United States at the time, and, by 2010, Infectious Media had become the first UK company with a proprietary platform that allowed their clients to plug into online supply sources to find the best advertising opportunities.
The company’s headcount has gone from eight people in 2010, to over 50 today, which includes analysts, data scientists, engineers, digital media professionals and sales representatives, many of whom were recruited from abroad. It has also opened offices in Paris and Hamburg, where it has a growing client base that it services from its London headquarters.
Martin Kelly, CEO and co-founder of Infectious Media, the winner of this year’s Fast 50, said: “With the financial crisis in full swing, we were forced to bootstrap the business. It didn’t feel great at the time, but in retrospect it was a good thing. We had no choice but to be profitable from day one, and it also made us very disciplined with costs.”
London appears to be leading the way with 40 per cent of the Fast 50 companies based in the capital generating 47 per cent of the combined revenues in 2012/13.
London was responsible for the majority of revenue generated by ‘softer’ technology companies with 64 per cent of revenues from Internet, software, media and entertainment winners based in the capital. The 2013 UK Fast 50 is the most regionally diverse group of technology companies, with only two of the top five winners being London-based and it is the first time a company from the North, Avecto, has finished in the top five since 2007.
‘Harder’ technologies were more strongly associated with regions outside of London. For example, 10 per cent of combined winner revenues (£66 million) were generated by GreenTech companies from the Midlands, South East and Scotland. A fifth of combined winner revenues (£126 million) were generated by telecommunications companies, mostly based in the South East.
UK Fast 50 CEOs expect their sources of finance to change little over the next 12 months. A quarter of surveyed CEOs expect to use bank debt over the coming year, just five per cent points higher than those that have used this source within the last five years. CEOs also predict broadly flat levels of private equity and venture capital funding.
Just over one per cent of the technology CEOs surveyed have made use of crowdfunding within the past five years, and the same proportion suggesting they would do so in the next 12 months.
David Halstead added: “It is too early for this fledgling source of finance to have a significant impact on the current UK Fast 50. As the industry matures we will monitor with anticipation to gauge the extent to which crowdfunding will be adopted by UK Fast 50 companies, and whether it introduces new businesses to the competition in years to come.
“Given all the strains of running a rapidly expanding business, the difficulty for SMEs is to understand and make use of applicable schemes. Where venture capital support is not available, SMEs might consider employing a dedicated finance professional at an early stage as accessing the right schemes can offer a strong return on investment and relatively short pay-back periods.
"The onus on Government is to focus on ensuring simplicity and effective communication of the support available to SMEs. The advisory community has an opportunity to provide much needed advice if it is able to flex its business models so that they are better suited to serving smaller, but high growth potential businesses.”
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