During the heyday of the era, the British flag flew proudly over California’s Silicon Valley, confirming the UK’s status as the largest foreign investor in high-tech start ups. While sterling was pouring into the US, the situation at home was a mixed-bag.

Today, VCs are reappraising their technology portfolios but it is still not easy for UK high-tech entrepreneurs to get their businesses off the ground. Organisations must cross - what’s known in technology spin-off parlance – the 'Valley of Death', the journey from the idea to reality.

The UK market for technology start ups is healthy and highly competitive with great technology ideas that are commercially-driven. This is positive.

However I believe that there are other factors that should be considered to avoid the UK being an environment where businesses and academic institutions have to battle in order to become successful.

Scyron is an example of this. The company was established over four years ago as a tech spin-off from the University of Birmingham by chief technology officer, Dr Richard Mansfield. He pioneered an innovative 'incident-recognition' technology originally as a warning system to help save children in the US should they fall into unattended swimming pools. But, due to the legal environment in the US, this initial application of the technology failed and could have left the concept permanently immobile.

Yet Dr Mansfield was tenacious and evolved the ability of the technology to film/record or locate specific incidents on video. Police forces consume thousands of man hours logging and analysing video content from surveillance operations. The point is that during the development of the company and its technology, Dr Mansfield had to focus more of his attention on attracting funding than on the development of the technology.

In the US and Japan, there is a wholly different approach to nurturing investment in technology companies. In both countries, there is a long-term approach with a minimum of five to ten year investment cycles that allow organisations to develop technology through its full cycle – in contrast to the UK and Europe, which have a typical three to five year cycle.

Ground breaking ideas have been developed in the UK, for example the jet engine, however the short-term investment approach in this market meant that it was the US with Boeing which successfully brought the idea to market and became the global leader in passenger jet engines.

Similarly Berners-Lee, a British person, invented the world wide web. But it was developed commercially in the US, which has a vibrant ‘Advanced Research’ programme with substantial, long-term funding for the development of new technologies.

The UK could benefit from such an approach, which is why it is commendable that the Confederation of British Industry (CBI) has called for greater investment in science and technology innovation.

So how can we help fledgling business navigate the Valley of Death and create a viable business?

To help them bridge this gap, we propose a seven point plan to help tech spin-offs and

1. Research and Resources

Resources in terms of money and particularly time are scarce when starting up so they need to be used smartly. Utilise links with academic institutions to exploit market research for product development. This holds true especially if your technology concept is being spun off from an academic institution which will gain kudos. This will pay dividends in the longer-term.

2. Intellectual Property

Intellectual property rights (IPR) are crucial to the commercial value of your technology concept. This is your means of differentiation, so evaluate how strong it is – for example, is it software that you can copyright or something that can be patented? Make sure everything is recorded, logged and dates so that you can demonstrate prior-art if needed.

3. Due Diligence

Get a good lawyer – preferably with a specialism in patents and technology as a sector – to advise on this.

4. Identify the ‘Killer App’ and Commercial Potential

Pinpoint the strongest, commercial application which has the most likelihood of attracting funding. This is key to getting the idea off the ground and in business initially.

5. Customer is King

Having beta customers or even better – full, paying customers who can help refine your offering; give you proof of concept – and most importantly revenues from which to make a profit! Early demonstration of potential revenue is key for funding, so letters from potential customers expressing interest or a desire to buy is the next best thing.

6. Funding

In the current technology spin-off environment in the UK, funding is fundamental to existence. Research all avenues because as with sales, you need several options to secure one success. Here are a few routes to investigate:

  • The DTI (or Gordon Brown’s newly re-named Department for Business, Enterprise and Regulatory Reform) is a good source of information and offers grants and regional development agencies, such as South East England Development Agency (SEEDA)
  • Investigate private investors who may provide more flexibility than other types of funding, however, be clear on what they get in return. For example, what is the minimum amount of money in return for shares which will get you up and running?
  • Venture capital, check out the British Private Equity and Venture Capital Association
  • Specialist seed funding is another option. There are specialist organisations which fund technology and University spin-offs such as Mercia Technology Seed Fund. These organisations bridge the gap between private finance and venture capital.

7. Longer-term Business Growth

Once up and running, how do you reach second round funding and growth? By this time, you will have got the technology concept off the ground and crossed the Valley of Death but there is no point having done that if you have not thought about the long-term. To secure second round funding and investment to take the business to its second phase, you need to re-evaluate three things: your business plan; strategy; and refined short and long-term revenue and profit forecasts. Any investor will look at these areas closely.

While the UK market for tech spin-offs is competitive and commercially-driven, there is the opportunity to learn from our counterparts in the US and Japan to take a longer-term view.

The CBI has called for an increase in Government funding with £600m for science and technology innovation. This is commendable and a step in the right direction, however it still only represents less than 0.01 percent of the UK’s GDP. If UK tech spin-offs are to reach their full potential and cross the Valley of Death, there needs to be more significant level of funding – and above all we must look beyond the current short-term, two to three year investment cycles.