This report examines the health of the venture capital market, a crucial source of finance for the UK’s high growth, innovative firms.
- The current crisis appears to have compounded issues the venture capital industry was already facing. Fundraising in 2009 was the lowest seen in the past decade, and it’s taking longer to exit.
- The situation would be worse without public funding. Public funds hardly featured in the dotcom era but now they participate in 40 per cent of all venture capital deals and 56 per cent of all early-stage deals.
- However, the fundamentals of the UK venture capital market still appear to be sound.
- As the economy recovers, and the merger and acquisition market returns, fund performance should stabilise and improve. The venture capital market appears to be well placed for the future.
High growth, innovative companies are disproportionately important for economic growth in the UK and venture capital is an important source of finance for these companies. It is one of the few sources with an appetite for risk that matches the uncertainty that comes with pioneering, innovative ventures and the ability to provide management support to take a company from initial proof of concept to mass market growth. This has seen venture capital act as a catalyst for new industries and ground-breaking global companies.
With this in mind, this report by Nesta compares the venture capital market before the dotcom crash with its performance today, and pulls out encouraging at signs for its future.