Wednesday, July 20, 2005

Mind the gap

The UK government this week officially launched its Enterprise Capital Funds, the latest in a string of initiatives intended to promote venture capital investment at the levels that commercial VCs disdain - the oft-discussed 'equity gap'. This one offers up to £2million equity finance, with government match funding for commercial VCs and business angel networks.

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.



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