This briefing looks at how to encourage venture capital investment into early-stage businesses.

Key findings:

• Venture capital helps drive innovation, but is rarely used by UK early-stage businesses.
• Early-stage investment is relatively unattractive to investors: it is riskier and costs more, and average returns have been largely unimpressive.
• The Government has attempted to boost the supply of venture capital, but public schemes have not made attractive returns.
• Entrepreneurs and the Government need to ensure that more firms are ‘investment ready’.
• Nesta Investments seeks to demonstrate models of early-stage investment that generate competitive returns. It is investing £50m in early-stage businesses over the next five years.

Young firms have an important role in driving innovation, both directly through their own activities and indirectly through their interaction with established firms.

The capacity of new firms to undertake small-scale experimentation and innovation allows new ideas and ways of working to be tested.

But the UK is perceived to have few firms that started small and grew rapidly into world-class corporations. Is this true? Does it really matter – and why? And what can or should policy do about it?

Author:

Nesta