Helping the West Midlands tech sector to thrive
To mark Birmingham Tech Week 2023, Richard Godwin, Investment Director in LDC’s West Midlands team, writes for TheBusinessDesk.com about what makes the region so attractive for fast-growing tech businesses, the main opportunities for them to expand, and how private equity can help them on that journey.
The West Midlands has the UK’s fastest-growing technology sector, with Tech West Midlands’ 2023 Regional Tech Report revealing it is now worth more than £15 billion. Part of the reason for that growth is down to the region having the country’s largest technology hub outside of London and being home to some of the sector’s most dynamic and forward-thinking businesses. The gaming community is particularly strong, with several of the larger companies having local bases in Leamington Spa and a number of studios calling the region home.
There is a strong investment and advisory community here, offering support at every stage of a company’s lifecycle, including early-stage. This includes the £25 million Co-Investment Fund launched by the West Midlands Combined Authority earlier this year to help businesses grow the region’s industries of the future, including technology. The wider local economy is now worth £120 billion and has seen 26 per cent growth over the past five years.
The West Midlands also has one of the youngest and most diverse populations in the UK. According to research by West Midlands Growth Company, a third of the region’s population is under 25 and 55 per cent of graduates currently choose to remain here after university.
As an investment partner helping ambitious management teams to capitalise on this growth and availability of talent, the technical sector is a core focus for private equity opportunities at LDC, and we’ve completed 21 new technology investments nationally over the past five years.
Opportunities to innovate abound
A major opportunity for many technology businesses is the rapid pace of change in the sector which rewards those who are able to innovate in order to respond to changing customer needs and to differentiate themselves from competitors. Businesses that do this successfully will be able to build long-lasting customer relationships and attract new customers.
A good example of a company innovating in this way is Solid Solutions, a software, support and training specialist with whom we partnered with in early 2020 to help its management team to deliver organic and acquisitive growth.
The Leamington Spa-headquartered company is the UK and Ireland’s leading reseller of SOLIDWORKS, the 3D computer-aided design package used by more than five million people worldwide. Along with supporting the management team as they made two acquisitions, we helped the team to pivot more of its training sessions to online, both of which expanded the business’ customer base. The switch to remote training also helped the business to lower its carbon emissions, which was an integral part of its ESG strategy.
During a partnership of over two years, Solid Solutions increased revenues by more than a third to £73 million.
Global growth a common target
Another opportunity for tech businesses, and one that can help them to scale significantly, is international expansion.
Take Texthelp, the education technology specialist that has helped more than 30 million students and employees with reading, writing and numeracy. We backed the management team in 2019 to help accelerate its growth plans in the UK, US and beyond. As well as significantly investing in new technology and product development, an 18-month partnership saw Texthelp enhance its market-leading position by expanding its footprint across North America, increasing revenues by 40 per cent to £27 million, and building a strong pipeline of prospective new customers.
With such a wide range of opportunities available, one of the main challenges technology businesses face is choosing their priorities. It’s important for companies to continue to innovate and test new uses for technology, but the commercial rationale must back this up. This involves considering the size of the market opportunity, the cost to enter new markets, the needs of customers, and what’s going to help build the business in the most robust and sustainable way.
The future is bright
The rapid development of Artificial Intelligence (AI) represents a range of opportunities for businesses but also brings challenges. Technology is advancing at a pace we’ve never seen previously, and AI is central to that. A crucial part of adopting new technologies includes consideration of how best to mitigate against cyberattacks and other external threats.
The right investment partner can help a technology business address these challenges and achieve the next level of growth. This may include helping to make the business scalable by supplementing founders with additional resources and key team members, broadening the product suite to deepen customer relationships, developing a network effect in the product and service offering to drive referrals, or providing additional investment to support an M&A strategy.
Initiatives like Birmingham Tech Week, which LDC is proud to be supporting this year, shine a light on the progress of the local technology community and networks like Tech West Midlands are also helping to advance that progress. We are excited about the opportunity over the next five years and we look forward to partnering with more ambitious management teams to help accelerate the next stage of their growth journey.
LDC is a sponsor of The Business Desk’s West Midlands Business of the Year Awards. Find out more about the awards here.