Tech start-up scheme hails new firms and urges banks to resume lending

Published on Saturday 13 December 2008 13:02

THE Edinburgh Pre-Incubator Scheme to encourage commercialisation of technology start-ups has helped 10 member firms raise £1m in equity seed funding over the past year.

The body, based at Edinburgh University, said 75% of the funding came from outside Scotland, marking the internationalisation of the country's early-stage investment market.

Adrian Smith, Epis director, is now calling on banks to start lending again to young companies that can prove their potential in 2009. He also wants the Government to improve the running of the Small Firms Loan Guarantee Scheme, which protects lenders against defaults.

He said: "The continuing reluctance of the banks to lend even small amounts to well-funded, promising young companies is an underlying source of concern." Smith added that the fact non-Scottish investors were keen to take equity in new ventures should give banks an indication of their scope for growth.

"We must not let short-term liquidity challenges hamper investment in the long-term health of the Scottish economy – now more than ever, we must keep that pipeline active," he said.

Since May, Smith has been telling member firms that the banking system is broken for small to medium-sized companies and they must find alternative sources of funding, both through their own networks and through Epis. He said a clear sign that firms have been forced to alter the way they raise capital is the fact that no members have built up debt on their balance sheets in the last year. This is as a result of firms relying on equity investors rather than turning to banks, he said.

Epis will continue to focus on helping businesses in "recession-proof" sectors, such as healthcare, over the next year. Smith is confident smaller businesses can ride out the recession better than larger ones.

Epis was formed in 2005 as a joint venture between Edinburgh University, Scottish Enterprise Edinburgh and Lothian and the European Development Fund. It provides funding, business and academic mentoring and university resources to technology-based start-ups with high growth potential.

One business helped by Epis in 2008 is Ecometrica, a climate change consultancy which helps clients reduce their carbon footprint. It received a 10,000 interest-free loan from Epis and subsequently raised 500,000 from wealthy individuals in London to launch the firm in September. It has 11 employees in Edinburgh and has opened a Montreal office to target the North American market.

Gary Davis, Ecometrica operations director, said: "We're already working with BP on its Energy Lab project. We designed the technology behind that, including devising a carbon calculator.

"Although we're based in Edinburgh, we do a lot of work in London and our funding has come from outside Scotland."