By Daniel Hunter

A third of London’s Tech City business leaders say their company is hindered by a lack of capital, whether sourced from institutional or private investors. The finding is revealed in the most extensive survey of TechCity senior executives to date, carried out by GfK in conjunction with business advisers Grant Thornton UK LLP.

The Tech Futures Report found that nearly one third (29%) of respondents believe their company is missing significant business opportunities because they cannot secure funding in time. Worryingly, 19% said they had to make people redundant because they couldn’t secure the necessary funding.

The research, which will be presented at Digital Shoreditch Festival today by Techcityinsider editor Julian Blake, finds that Tech City firms use on average three sources of capital with angel investors, venture capital (VC) and borrowing against personal assets being the most popular forms of finance. However, funding further growth presents additional challenges for London’s tech companies.

The report reveals that of the 43% of firms that have raised further capital, almost a quarter (23%) had problems, from the length of time it took; to investors or banks unwilling to take a risk; to a straight refusal for funds. Almost half of companies (44%) with an annual turnover of less than £1m also stated their worry about accessing credit in 2013.

"Many of the start-ups around Tech City may be early stage, but they are tackling complex funding requirements to fuel rapid expansion. Whilst there is an increasing flow of angel capital, we see a growing gap for businesses requiring investment of £500,000 to £2 million," Steve Leith, who heads up Grant Thornton's early stage technology team in Tech City, said.

“This is in stark contrast to the funding community in the US where the cycle of tech entrepreneurs reinvesting in start-ups is fully developed and the VC community has a greater appetite for risk.

“For the majority of these businesses, it is ‘make or break’ if they cannot secure investment at this stage of growth. These businesses need development capital; without it they are not only in danger of missing their growth opportunity, but in having to make redundancies, or at worst failing completely before they've really even begun.

“UK Government-supported initiatives such as SEIS relief, the MMC London Fund and GrowthAccelerator may prove part of the solution, but further innovative private sector capital structures will be needed to fulfil Tech City’s potential, and avoid a loss of talent and investment opportunities to the Silicon Valley dollar."

In addition to the difficulties around raising further capital, London-based technology businesses are also facing significant challenges related to recruitment. Almost half (45%) of those who took part in the study say a shortage of skilled workers is the biggest issue they face. Nearly eight out of 10 (77%) say they could grow faster if there were more skilled people available.

The survey reveals that Tech City firms have recruited six people on average over the past year, but further growth is hindered because much of that activity has been to replace talent they have lost, rather than to create new jobs to support business expansion.

42% of Tech City businesses find it difficult, to retain their best talent. This skills gap is being plugged by temporary resource, including freelancers and interns. Almost all (94%) of the business leaders interviewed say they use temporary staff in their business - but only 17% prefer to do so.

“This report highlights the ecosystem of entrepreneurship and how vital it is to have all the elements in place — business leaders with vision, skilled employees to create and bring products and services to market, investors willing to take risks," Ryan Garner, Research Director for GfK said.

"8.3% of Britain’s GDP comes from tech, and that is expected to rise to 12% by 2016. Our research shows Tech City is at a tipping point, and hopefully this report will help it find its way in spearheading that economic growth.”

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