The power of the crowd and cloud: Tech start-ups set to drive UK economy

The UK tech sector has been triumphant in its recovery from the recent fiscal malaise. With technology on course to contribute more than ever to the UK’s economy, we are quickly becoming a nation of entrepreneurs.

Now, armed with just a laptop and a good Internet connection, the tycoon of today can launch a start-up business more quickly and cost-effectively than ever before. In this article, Keystone’s Tony Watts talks tech and how it continues to shake up the start-up business.

Cloud computing

Cloud computing now offers a level of flexibility previously unheard of and has significantly reduced the barriers to enter markets which, once, may have been seen as impenetrable. With these online-based software solutions there is no longer the need to invest in large and expensive systems and applications. Instead, it is possible to select options that will enable business owners to scale up and scale down without risk, at a time which suits the company best.

Of course, care does need to be taken to ensure that an appropriate service is selected. Issues such as data security, business continuity and data retrieval can be problematic if not properly looked into at the outset. However, the quality of services on offer has improved drastically.

This dramatic shift in accessibility has been driven by large corporates, much to the benefit of SMEs. Through being more risk-averse and with more complex requirements, larger organisations have placed more and more demands on the providers and developers of SaaS (Software as a Service). While bigger businesses have paid a premium to achieve these demands, the major benefit to SMEs is that service offerings have become far more robust, with greater legal protection.

An added benefit for the entrepreneur is that, as services offerings grow, many businesses are offering a tiered service with a corresponding range of fees, dependant on the level of service and the legal terms required.

Crowdfunding

Meanwhile, crowdfunding has become a major source of finance for the entrepreneur and, particularly, tech businesses. Broadly speaking, crowdfunding harnesses the power of the Internet, enabling entrepreneurs to raise capital directly from a wide range of possible investors and donors.

Crowdfunding can take various different forms:

• crowdinvesting where investors get shares or debt securities (i.e. bonds) in companies looking for capital;
• crowdlending (also known as peer-to-peer lending) where investors lend money to enterprises looking for funding;
• reward-based crowdfunding where those giving money receive a reward, such as a copy of an album being produced or tickets for a performance that will be staged; and
• donation-basedcrowdfunding where money is given to the entrepreneur without any financial or other return.

Crowdlending and investing

Crowdlending and crowdinvesting have both raised questions as to how far their activities are (or should be) regulated. As both have increasingly gained acceptance in recent years, so governments and regulatory authorities have adapted to provide a better legal environment for them. In the UK, both crowdlending and crowdinvesting are now subject to a clear regulatory regime covering aspects such as licensing, requiring platform operators to have the correct regulatory authorisation and disclosures to investors/lenders.

The same theme has been taken up at EU level. The ESMA (the EU organisation involved in the regulation of securities and markets) and the EBA (its counterpart in the banking sector) have given cautious welcomes to these recent developments. Both have given their views on how existing EU-wide laws apply to these activities but have called for a harmonised framework and for the same treatment in all EU states.

The World Bank has also recognised the power of crowdfunding to aid development, believing that it can ignite innovation, create jobs and grow economies. It also calls for regulatory regimes which recognise and support these new developments.

Peer-to-peer lending and virtual currencies

The trend is also growing steadily in other areas that harness the power of the Internet. For example, peer-to-peer lending enables payments to be made in a much cheaper way, eliminating the need for conventional banking or payment methods. Meanwhile, the growth of virtual currencies such as Bitcoin also has the clout to aid the entrepreneur worldwide. The ideas and technologies that form the basis of virtual currencies are seen as having the potential to enable micropayments to be made both quicker and at a fraction of the cost involved using the conventional banking and payments infrastructure. The regulation of virtual currencies is far more difficult than that relating to crowdfunding (at a European level the reaction has been less positive). But this could well be an area to watch.

Today’s leaders understand that the tech industry continues to challenge the status quo, by breaking down boundaries and providing opportunities for alternative models and new competitors. The global investment community is finally waking up to the UK’s potential to innovate and form start-up companies to rival those of the US, for the very first time. How long, then, will it be before we stop talking about the Billion Dollar Club and start focusing on the Billion Pound Club?