UK software companies that survive this year can look forward to a golden age next year, according to leading venture capitalists.
Despite the current harsh climate, innovation is still alive and well in the UK software industry, according to venture capitalist Strathdon Investments.
Strathdon chief executive Hugh Stewart said the UK market has matured: "There are a lot of role models now, people who have spent time in this environment and are now stepping into small companies.
"There's a lot of people who have worked for US software companies and understand what it's all about. Ten years ago they didn't exist."
The US venture capitalists are heading home because they have found that things are quite different here, he said. Many have now abandoned software investments in favour of the next big things - nanotechnology and biotechnology.
But Stewart said there are still areas of growth in software. "We are very keen on Microsoft's .Net. In terms of the implications of that technology we are only in the foothills. The potential changes are impressive.
"But to succeed you have to focus on the applications business."
Colin Spiller, Strathdon's marketing director, said: "For companies with real products and services who can enuciate what they are about, a golden age is about to begin. There will be a resurgence in the UK software industry like there was in the 1970's."
"I've been encouraged by the changes in academia," Spiller continued. "They are recognising that their funding won't cover everything any more, so they want to find the commercial advantage in their research. Over the next five years we will see even the second and third tier institutions growing their entrepreneurial programmes."
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