Economy could close flap on ideas

By Jane Wakefield Technology reporter, BBC News, Cambridge, UK

Embryonic high-tech companies could become the latest victims of the credit crunch, according to those gathered at a conference showcasing new firms.

The warning came as it emerged funding allocated for small businesses is being diverted to help boost the flagging housing market.

A total of �300m is being reallocated in order to help first-time home buyers, the BBC has learnt.

The conference featured new ideas and much talk of how to survive the crisis.

The �300m will be diverted from regional development agencies, at the expense of small companies in need of early-stage funding.

In a letter seen by the BBC, Bryan Gray, chairman of the Northwest Regional Development Agency, said the move would damage fledgling businesses.

"The �300m will affect expenditure in 2010/2011 but it is important to note that the impact on the investment plans of local partners will be immediate," he said in a letter to John Hutton, Secretary of State for Business.

There is very little cash out there Rebecca Harding

"It will increase medium-term uncertainty because it lessens our ability to provide the future funding required to drive economic regeneration," he added.

Learning lessons

The issue of future funding was high on the agenda at the Tigers of Tomorrow technology conference, showcasing 26 early-stage tech companies based around Cambridge.

On show were a series of diverse new products, including an electronic cat flap, an eco-car and movie software from a firm hoping to capture the imagination of the YouTube generation.

Matt Kelland is the founder of ShortFuze, the firm behind the animation software Moviestorm.

He thinks UK investors could learn a lot from the Californian business model.

"In Silicon Valley investors throw money at people but in the UK people are a lot more cautious, offering funding stage by stage," he said.

But he is not convinced that the hurdles faced by start-ups would be any greater in the current economic climate than they were when he set up ShortFuze four years ago.

"They still face the same challenges of convincing people that there is a market for their product and that you can make it work," he said.

Business angels

Dr Nick Hill is a Cambridge physicist and cat-owner who has designed a cat flap which works in collaboration with the microchips that pet-owners are increasingly having implanted in their pets.

He said that, to date, he had not noticed funding for SureFlap being affected by the wider economic gloom.

However, he admitted: "It has the potential to affect us if business angels decide to be more careful with their money."

Some 70% of initial funding for start-up companies comes from entrepreneurs' own pockets and as mortgage and credit markets dry up, access to finance could become more difficult, said Rebecca Harding of think-tank Delta Economics.

"There is very little cash out there," she told delegates at the conference.

Eco-car

For the companies gathered in Cambridge, the future will depend on the strength of their ideas, and Axon Automotive is hoping to benefit from the twin trends of going green and spending less.

Steven Cousins, founder of Axon Automotive, has designed a cheap car that can do 100 miles to the gallon with less than half the CO2 emissions of the average vehicle and is made out of carbon fibre.

"I think our approach is a 'third way' to fuel economy. We have tackled the basic properties of the vehicles instead of worrying which kind of fuel is powering it," he said.

The car, expected to be on the market in 2010, will be manufactured in Northamptonshire.

"We anticipate that the car will be affordable to buy, maintain and run - a much lower cost than existing low-carbon vehicles," said Dr Cousins.

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