Government is urged to support star companies
One of Scotland’s leading technology entrepreneurs says a lack of finance is stifling the growth of star companies, and German-style direct government investment is the only answer. Dr Aravinda Korala, whose banking software pioneer KAL has just picked up a Queen’s Award for international trade, says the firm’s rapid growth is already outstripping its ability to raise new cash.
Edinburgh based KAL employs 100 engineers across 80 countries and is the world leader in ATM (cash machine) software, supplying the entire global networks of world renowned banks such as Citigroup and China Construction Bank. However, Dr Korala reveals although the company he founded 22 years ago is now prospering in a profitable niche, it cannot stand still.
“We have some other things we would like to do as well,” he told The Herald. "I think for companies of our kind of size, the whole raising money scenario is actually much more difficult than it should be. The view is that a company like ours should go down the venture capital route – we did that 10 years ago … There’s the idea that banks should be funding companies – but it isn’t a bank’s job to be funding the growth of a company like us. I think there is a need for something in the middle.”
KAL sells 90% overseas and has doubled those sales to £10 million in three years. Its Queen’s Award citation stressed its “strong emphasis on product development”. Dr Korala said the lack of funding options for £5m to £50m turnover companies might explain why “UK and Scottish companies struggle a bit” to increase in size. “We are too small for the stock market, too big for angel investment. Venture capital is the only option, but I don’t think it’s right for the majority of companies – the only place where VC works successfully is California."
He went on to say: “I think it is something the Scottish Government should look at very closely. We have all heard of the ‘mittelstand’ companies in Germany, where (government support) seems to work very well. The Government should be prepared to take a significant proportion of an investment, alongside other investors, as much as 80%....it should be seen as something that is done across the board for a significant number of companies. The Government could protect themselves from significant losses by ensuring that the other investors took the first part of any loss, and to make sure there was good control.”
Source : The Saturday Interview, The Herald