M (2009b) Public policy support for the informal venture capital market in Europe: a critical review

ABSTRACT. The ability of small firms to access finance is hindered by persistent market failure which creates funding gaps for new businesses, particularly in technology sectors, seeking small amounts of finance. This has prompted various forms of public sector intervention to increase the supply of both debt and risk finance. For the past decade (longer in the UK) both the EU and Member States have increasingly focused on the informal venture capital market as a means of increasing the supply of early stage venture capital.This paper describes the changing nature of the forms of intervention and provides a critical review of its effectiveness. The lack of data on angel investing means that there is very little evidence on the impact of these forms of intervention. The paper advocates that governments should invest in appropriate methodologies which can accurately measure investment trends in the early stage venture capital market, and specifically angel investment activity, so that the need for public sector intervention can be demonstrated and the impact of such interventions can be measured. Key words: business angels, business angel networks, investment readiness, co-investment scheme