ICT companies say growth funding is trying up drying up

The number of Technology, Media & Telecoms (TMT) businesses with sufficient access to funding to operate effectively has halved in the past year, according to research carried out by the accountants and business advisers BDO Stoy Hayward.

In 2009, only 38 per cent of TMT businesses said it was easy to get access to new funding, in comparison to 73 per cent in 2008.  In addition, the number who found it difficult to get access to funding more than doubled to 30 per cent, from 14 per cent in 2008.

Julian Frost, Head of TMT at BDO Stoy Hayward, said there is real concern about the ability of TMT companies to access the funding needed to grow. “We’re hearing increasing levels of frustration being expressed by TMT businesses as financiers say to them ‘meet your growth forecasts and we’ll support you with additional finance’”. As Frost noted, the problem is that, “These dynamic innovative businesses need the additional capital to meet their growth forecasts.  All this is just creating a chicken and egg situation.”

“As the economic environment remains tough over the coming months, the situation is likely to become increasingly difficult and many businesses may feel that funding has dried up completely,” he added.

Many of the companies that responded to the survey respondents have scaled back capital raising plans. In all, 55 per cent said that they are not looking to raise capital externally this year, up from 17 per cent last year.  For those who are looking for capital, there has been a shift in the source. In 2008, 59 per cent of TMT businesses were looking to investment banks, private equity and the capital markets for finance. This has fallen to 14 per cent this year.  Meanwhile the number of businesses looking for straightforward bank loans has almost doubled from 9 per cent to 17 per cent.

“These results are clearly a reflection of the difficult environment that TMT businesses are experiencing and suggests that companies are having to scale back their long term plans in view of the current economic situation,” said Frost.

TMT businesses have found themselves in an ironic situation, as banks that have received taxpayer bailouts are being encouraged by government to lend but, said Frost, “There is a perception amongst businesses that obtaining bank funding has become a very protracted and expensive process.  If companies continue to believe access to funding has dried up then only those in desperation will be approaching the banks, and the banks will see fewer high quality lending opportunities. It’s a vicious circle,” points out Frost. “If this continues there is a real risk that investment in R&D, the lifeblood of many TMT businesses, will dry up.”

The results form part of BDO Stoy Hayward’s annual survey into the TMT sector.  Respondents come from across the three sub-sectors and are all senior finance executives.