Regional funds ‘too small and poorly managed’

GOVERNMENT-backed venture capital schemes have only made a small impact and have not had the same effect as private funds.

That’s according to a study by the British Private Equity and Venture Capital Association (BVCA) and the National Endowment for Science, Technology and the Arts (NESTA) which has evaluated the impact of six government funds on 782 companies from 1995-2008.

The report found that government-backed funds are often, “too small, too regionally focused, poorly managed, or unable to provide enough capital or effective follow-on funding”.

The report’s authors are urging government to make the following changes:

• Raise the minimum size of hybrid venture capital funds (funds with a mix of public and private money) to £50m.
• Remove geographical constraints. Requiring a fund to invest only in a limited geographic area reduces the size and calibre of the start-ups that they can invest in, limiting their ability to generate commercial returns.
• Remove limits to maximum investment levels per portfolio company. Filling narrow funding gaps by restricting the amount of capital funds can invest per company forces growing companies to devote too much time to the search for new investors, rather than running and growing their business.

Simon Walker, chief executive of the BVCA, said: “While it is clear that progress has been made and these initiatives have recorded commendable successes, policy in the future must be smarter and heed the lessons of the past ten years.

“These schemes are often prisoners of regional and operational constraints which prevent them from unleashing the true potential of high-growth companies.”