Investment firms shun start-ups
The Times, 16th January 2004
Fledgeling British companies will find it harder in 2004 to secure financial backing than at any time in the past seven years, amid evidence that venture capitalists are preparing to turn their backs on small companies this year. Investment firms will earmark less than €1.4 billion (£970 million) for start-up businesses across the whole of Europe in 2004 — just one twentieth of the amount they ploughed into the sector in 2000 — according to research by AltAssets, the private equity research firm. British companies are set to receive less than €500 million, analysts believe. Vincent Cable, the Liberal Democrat Treasury spokesman, said: “These are very alarming figures and they make a complete nonsense of Gordon Brown’s claim to be creating a more entrepreneurial economy. If growth is to be sustained, there has to be a new generation of investors and entrepreneurs, and this is not coming through the pipeline.” John Healey, Economic Secretary to the Treasury, said: “Enterprise and growth are vital to the British economy, and we need a flourishing venture capital industry to support that.” Jason Purcell, chief executive of FirstCapital, a company that helps start-ups to raise venture capital funding, said: “In the last couple of years there has been a dramatic reduction in capital flowing into start-ups. If fundraising doesn’t pick up quite considerably it will continue to have a severe impact on (prospects of) early-stage companies.” Mr Purcell estimates that about 80 per cent of the 500 European venture capital firms that were making early-stage investments in 2000 have either moved later stage, merged with rivals or are effectively winding down after failing to raise new capital. In 2000, venture capitalists invested €21.2 billion in fledgling European companies, according to VentureOne, a research firm. A year later, they invested only €10.9 billion, and in 2002 the figure fell to €4.8 billion. The amount invested slipped again in the first three quarters of 2003 to a mere €2.17 billion. The drop in the value of start-up funds is the most pronounced element of an industry-wide fall in available investment capital. Insurers and pension managers have dramatically scaled down their investment in new funds after venture capitalists lost billions of pounds on failed internet forays and after falling stock markets depleted the value of institutions’ assets. In the UK, the value of private equity funds raised for all stages of investment halved to €11.2 billion last year. Meanwhile, €17.6 billion was raised last year to invest across Europe, a 40 per cent drop on the year before and about a third of the record €48.0 billion amassed in 2000.
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