Connect Yorkshire ready for self-funding challenge

The idea behind Connect Yorkshire, said founder Nick Butler, was that professionals could benefit from the resulting fees and also contribute to the Yorkshire economy.

Yorkshire Forward liked the concept and backed it with £300,000 a year in public money.

The regional development agency had seen at first hand how public-private efforts helped create a thriving technology industry when its officials visited San Diego in California at the turn of the last century.

A decade later, the not-for-profit company claims to have helped 70 businesses win equity funding worth £45m and a further 180 get valuable advice and support.

But now Yorkshire Forward, its main backer, is being wound down and Connect Yorkshire, which has eight members of staff and an office in Leeds, faces the challenge of becoming self-funding.

Mr Butler, the chief executive, is confident that the company can achieve this within the next 18 months. He is working on a project which he hopes to publicise later this year.

In an interview with the Yorkshire Post to mark Connect Yorkshire’s 10th birthday this month, Mr Butler spoke about its successes, the current challenges and the changing nature of the technology sector in Yorkshire.

The former corporate lawyer started by reeling off a list of his supporters, including names such as Rothschild, Apax Partners and Leeds University and most of the main professional services firms with a presence in Yorkshire.

Connect Yorkshire has around 40 private sector backers in all, he said, which have put in £60,000 in cash plus £250,000 in free time every year.

These professionals help select and then prepare young companies to meet with potential investors, typically venture capital firms and high net worth individuals, at three or four events a year.

Mr Butler described the events as “more sophisticated” versions of Dragons’ Den, the popular TV show.

The process tends to take longer as well – on average it takes between six to 12 months between presentation and investment.

Around a third of companies that present find investment, according to Connect Yorkshire.

Success stories include listed acne specialist Syntopix, spend control software firm Proactis and cloud computing firm Liquid Accounts, said Mr Butler.

“It’s been a tough battle,” he added, talking in general terms about helping the challenge of helping businesses win investment.

“We are in the equity gap between £300,000 and £3m. Most of these are not bankable propositions because they don’t have the necessary assets or profits. They do have traction in the market – they have sales.

“Our job is to help them put a proposition to venture capitalists that will encourage the VCs that they are going to get three times their money back in the next three to five years.”

Venture capitalists virtually shut up shop during the credit crunch, but their appetite has improved over the last year, said Mr Butler, who pointed to two recent investments for £1.5m and £750,000.

He added: “There is funding around in VCs. There’s no doubt about that. They would say finding investment propositions is the problem. They are probably right about that.

“Their requirements are very difficult to meet – more or less stellar growth and three times money back in three to five years. That’s the reality. Achieving that takes some doing.”

In spite of that, there is “loads” of entrepreneurial activity in the Yorkshire technology sector, he said, mainly in the IT, telecoms and software space.

While the region might lack some of the big tech names of the past, when it had companies like Systime Computers and Freeserve, it does host quite a few businesses with sales of between £1m-£5m and a reasonable number of highly skilled employees, added Mr Butler.

Connect Yorkshire spokeswoman Susan Goss-Clements said: “There is a real core of expertise in this area.”

The board includes chairman Richard Doyle, the founder of Esteem Systems, Phil Cammerman, of YFM, Ian Gilbert, managing partner at Walker Morris and Gerard Toplass, of Claughtons.

Connect Yorkshire also runs the Techmesh network for Yorkshire’s IT and telecoms businesses. Previously funded by Yorkshire Forward, this operation must also become self-sufficient.

Bid to encourage angel investment

THE Government published new proposals yesterday to encourage more business angels to invest in small and start-up businesses with high-growth potential.

Ministers want to reform the Enterprise Investment Scheme and Venture Capital Trusts.

They are also seeking views on proposals to support seed investment through the tax system. Small companies find it difficult to attract equity finance as investors often prefer to invest larger sums in big companies.

David Gauke, Exchequer Secretary to the Treasury, said: “The Government wants to make the UK the best place in Europe to start, finance and grow a business and we know a vital part of this is ensuring access to a wide range of sources of finance.”