Yorkshire’s technology sector – helping to bridge the North/South divide

IT’S an undeniable fact that the Thames Valley is literally teeming with technology firms.

From IT giants such as Microsoft, IBM and Oracle to infant start-ups, if you’re into hardware or software the South East is the place to be.

And lining the M4 corridor has its benefits. Industry clusters (despite having recently lost their appeal with regional development agencies and government) are like magnets for talent, investment and collaboration. More importantly firms are not only geographically close to London but visible to City analysts and investors.

But such benefits come at a cost. Property is at a premium as are wages and living expenses. And then there’s the all important healthy work/life balance, made almost unachievable thanks to a commute from hell unless you’re happy living under Heathrow’s flight path.

Despite the Thames Valley’s star attraction status other hotspots across the country do exist. Bristol, Birmingham and Manchester all boast healthy technology sectors if on a smaller scale. But for many it’s Yorkshire’s capital Leeds that holds a candle to the Thames Valley’s flame.

Over the decades it has supported the growth of numerous industry leading plcs including the daddy to many other starlets across the region – Systime. Travel 20 or so miles in any direction and you’ll find other hubs in Harrogate, Wetherby, and York. More recently, Sheffield and Rotherham have proved popular destinations in which to set up technology businesses.

According to Jonathan Dixon of the South Yorkshire Investment Fund (SYIF), South Yorkshire’s towns and cities are also proving attractive to both resident IT entrepreneurs and outside talent.

“Applications from people wanting to set up a technology business are definitely on the rise,” says Dixon.

“We have a mixture of businesses we have invested in from spin-outs to graduate headed start-ups as well as entrepreneurs who have identified gaps in niche markets and the products to fill them.

“We’re also attracting companies from outside the region as seedcorn funding is rare in the UK. But that South Yorkshire has such a good reputation for skills and infrastructure is equally as important in their decision to relocate.”

SYIF investment packages of funding and mentoring support are suitable for most small and medium sized manufacturing or service sector businesses; the main exceptions are retail, primary industries and some property developments.

SYIF’s Capital and Development Fund can provide minority stakes by way of equity between £100k and £2.5m but typically restricts first round funding to £250k for an early stage business – although further funding may be available as the business grows. The fund looks for companies with significant growth potential which have a clear “unique selling point” and management team which can see them through to a successful exit in five to six years.

For businesses within niche technology markets, SYIF set up the Seedcorn Fund which invests in pre-revenue, early stage technology and knowledge-based enterprises.

The Seedcorn Fund fills a significant gap in the financing market, targeting ventures which may be seen as too high-risk by mainstream investors and offering a secure future for innovation in the region.

Among some of the firms invested in by SYIF is Activ4Life, creators of a special device that measures and records the movement of patients in post-operative care.

“The software enables physicians to check and monitor whether patients who have just undergone major surgery are moving too little or too much,” explains Dixon.

“The gizmo worn by the patient works much like a pedometer and is proving invaluable in helping improve patient recovery.”

Another firm to have benefited from SYIF investment is Sheffield University spin-out Limit State. The company offers three software packages to civil engineers building large structures such as bridges.

“The company is at a very early stage but has entered the marketplace successfully,” says Dixon.

Andrew Burton, managing director of the Viking Fund, agrees that the region continues to be a hotbed for exciting new talent.

“Most of the companies we’ve invested in have been started here in Yorkshire,” he says.

“It’s true that an increasing number are based in South Yorkshire, but I think that’s because technology firms need to be based in a metropolitan environment to attract staff.”

Start-ups focused in biotechnology as well as specialise software developers are among the types of technology firms that the Viking Fund has invested in, but the advent of new technologies including Web 2.0 has sent a flurry of new hopefuls in the fund’s direction.

“We’ve had a lot of business plans based around Web 2.0 in the last 18 months,” reveals Burton.

“But I’m a little cynical about their potential as they will be competing against thousands of other enterprises looking to build software around it. Only a few will ever make it big.

“Mobile technology is another key growth area and currently under developed. There is so much more that can be done through mobile phones but the software available is limited. However, it’s a specialist sector and requires lengthier development.”

However Burton admits that Yorkshire’s technology firms have a number of challenges to overcome, particularly software houses.

“For example only three of the software developers we’ve invested in have sold software into corporates,” he says.

“Selling into corporates is very hard. IT departments generally go for big large-scale systems to meet their requirements. As a result the enterprise software market is dominated by international developers such as SAP and Oracle. Licensing rules demand that any plug-in software must be accredited with the larger system vendor, so smaller firms must go through the rigorous process of accreditation. That is both timely and costly.”

The situation is being made even more complex by customers of Enterprise Resource Planning (ERP) seeking to reduce the number of suppliers they deal with. According to David Turner, group marketing director of Harrogate-based financial accounting software firm Coda, this is making it harder for smaller software vendors selling ERP add-ons.

However, it won’t necessarily stem creativity as there are a number of companies in the mid-market sector seeking alternatives to ERP.

“This means there are openings for focused applications that add value to specific market sectors,” he adds.

But despite the challenges, investment in technology firms is showing no abatement, and indeed some experts are predicting greater interest in start-up funding thanks to falling property prices, hedge fund collapses and stock market declines.

According to figures from Connect Yorkshire, a Yorkshire Forward backed organisation created to fast track growth for the region’s technology firms, more than £8m has been invested in regional tech firms in the last 12 months.

Its twice yearly investment forums not only continue to attract a healthy number of investors and tech start-ups but offer entrepreneurs advice and inspiration. Connect also offers free workshops, an investment portal – MyDealMaker – technology conferences and finance schemes including Inv£storQuest – a competition open to early stage firms with a £1m prize and Venturefest – a business plan competition run at Connect’s Investment Forums with a £30,000 prize on offer to the winner.

Although Yorkshire will never match the M4 corridor’s lustre and appeal it is certainly proving capable of holding its own. Keeping up that momentum may prove trickier as a result of economic uncertainty but it seems that for now at least Yorkshire’s next generations of technology entrepreneurs have no shortage of good ideas.