Game Changing Science

The UK has a long record of producing game changing science but generally being very bad at commercialising it. However, the latter has improved in recent years as a generation of UK managers has emerged with the following features: i) employment experience within technology based multinationals (frequently North American), ii) have made themselves financially independent and have become disenchanted with the politics required to advance their careers to the top echelons of very large corporates, iii) have demonstrated that they have the skills to operate successfully within the smallcap environment (these are the rare ones!) and iv) have developed an excellent network of contacts within their industry sector, which can greatly facilitate the development of sector relevant smallcaps with which they become involved.

The Big Technology Moves

Warren Buffett observed some years ago that very few of the major step changes in technology have proved to be good investments. Here is a quote attributed to him re the airline industry:

"The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down."

Luckily for investors, within the major step changes in technology there are invariably smaller but vital step changes required which are frequently overlooked by the major players - AIM is a good hunting ground in which to look for such opportunities. The benefit for the smallcaps exploiting such opportunities is that the major players can become the channel to market rather than the smallcap having to rely completely on developing its own sales & marketing organisation and incur the huge expense involved in customer acquisition. Frequently the best approach is for the smallcap to carve out a niche market to sell to directly and get coalface experience of what end customers want, and then to develop channel partners. Examples of these types of smallcap on AIM are:

Education/Training: Education Development (LON:EDD) International, currently in the process of being acquired by Pearson Group, developed Campus, a tool which significantly reduced the cost of and increased the capacity for awarding training qualifications both within…

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