Mind the gap
Inevitably, this will nibble at other established schemes, such as the Regional Venture Capital Funds launched with much fanfare three years ago. I've been speaking to the managers of various RVCFs recently for an upcoming feature in 'Corporate Financier', and the feeling so far is that the government would be better relaxing the limits on existing funds rather than launching new schemes. The RVCFs are limited to investing £250,000 in a round, which really doesn't go that far. And in that range, they're competing with business angel syndicates as well as other DTI projects like the Early Growth Funds. There's also questions about how the demands of the government investor for more deals can be balanced with the demands of its private sector partners for a half-decent return and a relatively secure risk profile. Meanwhile, as the commercial boys look for ever-larger deals on the basis that it's no more work to do a big deal as a little one, that equity gap keeps growing.
For more on government-backed VC, see this feature from 2003.