HAVE UK VENTURE CAPITALISTS A BIAS AGAINST INVESTMENT IN NEW TECHNOLOGY-BASED FIRMS

This paper addresses the important question for innovation policy of whether or not UK venture capital firms show a bias against investing in technology-based, new and young enterprises. The evidence from UK and US industry statistics indicates that, pro rata, American venture capital firms invest nearly three times as much finance into technology-based, start-up and early-stage investments as their UK counterparts when later stage, MBO/LBO investments are removed from the data. US venture capital firms are also more likely to invest at the earlier stages of investment, while the UK industry has increasingly come to be dominated by management buy-outs/buy-ins and other later-stage, refinancing activities. In 1991, a postal survey was conducted of 40 investing firms from a population of 75 UK venture capitalists which currently invest, or are prepared to consider investing, in technology-based companies. The sample was segregated into 'generalist funds' and 'technology specialists' depending on the percentage (greater or less than 50%) of technology-based investee companies within the venture capitalists' current portfolios. The results confirmed that technology projects had to meet more rigorous selection criteria than non-technology projects. In undertaking technology-based project evaluations, investors imposed higher investment return 'hurdle rates' at each stage of investment other than seed capital. Technology-based projects were also more frequently required to address minimum markets greater than the UK alone when compared to other investment categories. No material bias was found between the actions of generalist and specialist funds towards technology-based projects. The ratio of technology-based projects offered to technology-based projects accepted was similar for both groups