Policy Innovation Blog

Venture Capital

08.07.2010

Nothing ventured...

If you had to bet on two forces to deliver economic growth in the future you could do worse than to pick entrepreneurship and technology.

High-growth, entrepreneurial businesses delivered the majority of new jobs in the UK over the past decade. And innovation generated two-third of economic growth over much the same period.

But both of these need smart, risk-tolerant finance to back them. And the latest indicators here suggest that the UK is doing a poor job at entrepreneurship and technology in this recession.

New research we're releasing today provides the first insight into UK venture capital investment and fundraising in 2009. The overall picture is of an even worse year than 2008, with half as much money raised for VC investments, half as many new funds raised, and 27% less money invested in businesses.

The underlying dynamics of the asset class are also being affected: the time between investment and exit is now on average seven and half years, far higher than it's been for the last two decades, meaning investors have to wait longer to see results.

There is hope on the horizon. The VC market can be hard to read accurately, and performance may pick up in the near future as investments made under demanding conditions in the tough post-dot-com period start to bear fruit. And the impact of the Innovation Investment Fund, established in 2009, is starting to leverage more private money into the space.

But for those with the courage to make these important bets, these are still anxious times.