You are here: Home » News, views and events » Press releases » NESTA report highlights growing dependence on early stage public sources of finance

NESTA report highlights growing dependence on early stage public sources of finance

02/09/2008

"At a time when funding for entrepreneurs is decreasing, publicly backed funds are playing a critical role. We need to encourage private investors to increase their presence in this space - they bring rigour, expertise and experience to public sources of capital."

A new report to be published next Monday, 8 September by NESTA, the National Endowment for Science, Technology and the Arts, points to an extremely volatile early stage investment market, with tomorrow's entrepreneurs increasingly reliant on public sources of capital.

The report ‘Shifting Sands: The Changing Nature of the Early Stage Venture Capital Market in the UK' shows that whilst the UK boasts the largest private equity market in Europe (accounting for one in every three investments), there are concerns that the availability of early stage venture capital is declining. Average individual investments fell from a peak of £1.9 million in 2006 to £865,000 in 2007.

The report highlights the growing dependence in the UK on publicly backed funds which are now involved in 57% of the early stage market, whilst private sector investments dropped from 70% in 2001 to 43% in 2007.

The report also finds that the majority of deals are now co-investments between public funds, private funds and angel investors. In particular, Angels, individual private investors and angel syndicates have become more significant in the early stage market, with their share of private sector investments rising from 16% in 2000 to 41% in 2007 at the expense of private investment funds whose interest in the early stage market appears to be in decline.

NESTA's Chief Executive, Jonathan Kestenbaum said: "At a time when funding for entrepreneurs is decreasing, publicly backed funds are playing a critical role. We need to encourage private investors to increase their presence in this space - they bring rigour, expertise and experience to public sources of capital.

But public funds must demonstrate economic return for private capital to be interested in making early stage investments. The worst thing for early stage entrepreneurs is for public finance to be a source of philanthropy rather than of development capital".

Contact:

For further information, please contact Catherine Anderson on 020 7438 2609 or catherine.anderson@nesta.org.uk

About the Report

The report entitled ‘Shifting Sands: The Changing Nature of the Early Stage Venture Capital Market in the UK' is a collaboration between NESTA and the Hunter Centre for Entrepreneurship, University of Strathclyde, Glasgow. The report was compiled by Yannis Pierrakis, NESTA Investments Research Manager and Colin Mason, Professor of Entrepreneurship, University of Strathclyde.

The report is the basis for further research that NESTA will carry out with the BBAA (British Business Angels Association) to understand the changing role of the UK Angel investment community, and with the BVCA (British Venture Capital Association) on which government initiatives have been most successful in stimulating early stage investment in the UK.