Richard Tyler of The Telegraph writes how “Public venture funds make very little difference”. This is based upon a report by the British Venture Capital Association and NESTA and it states the following points:
Britain has no untapped reservoir of high-growth companies starved of venture capital
This is a contentious point at best. Does this mean that either there is overfunding or, as is my opinion, there is no supply chain of deal flow to provide venture funds with suitable startups?
…when companies receive investment from one of various publicly backed venture funds, the change in their performance is only “modest” compared with the step change seen when a private fund invests.
This speaks volumes about the sort of folk who are hired to manage public venture funds. Either they’re not very good investment managers or they don’t treat public-backed venture funds with the same attention or respect as private money. So – examine what the problem is there.
The report says: “Companies that are recipients of funding under one or more of the government hybrid funding schemes examined do not yet exhibit significantly better performance. This suggests that the UK does not posses an untapped resource of high potential firms whose (greater) performance will be unleashed by simply making available more equity finance within the ‘equity gap’.
Or alternatively, the way that government funds are managed is not suitable for young startups. The equity gap exists for the average startup at several positions in their life – initial seed, business growth, market share expansion. It is my opinion that the earliest stage equity gap means that many companies are unable to take advantage of venture funding due to poor engagement from the VC market and, frankly, red tape barriers for access to public funds. Understanding that we, the people, are responsible for this red tape is important but a small percentage of wasted funds if placed in the hands of a blame-averse (as opposed to a risk-averse) seed capital, would reap significant rewards.
The report also confirms the anecdotal impression that venture funding is a poor way for Government and the regional development agencies to create jobs.
Is this really all about jobs? I would have hoped that this would seriously be about generating wealth – not just making sure that people are sitting in offices. Northern Ireland has had a disastrous history of selling itself short as a cheap place for a call centre. We don’t need to inspire people to take low level internships – we need people to think bigger.