The European Investment Fund has provided crucial backing for VC investment in the UK. Grant Murgatroyd investigates the impact and asks, will it continue to affect the future of innovation and scale-up investment in Europe?
In July 1999, after two years in government, UK Prime Minister Tony Blair gave a speech to venture capitalists in London in which he pleaded for UK pension funds to at least consider investing in venture capital (VC). At the time, UK VC had been growing steadily for two decades. In 1984, £190m was invested in 480 businesses. By 1998, VC investment amounted to £4.9bn in 1,332 firms.
Back in 2000, analysis by Dr Oliver Burgel at the Foundation for Entrepreneurial Management at London Business School – for the British Venture Private Equity & Venture Capital Association (BVCA) – found that historical returns were 14.2%. Since 1987, cumulative VC returns, net of fees and carried interest, had outperformed UK public equity returns by a narrow margin and all other major UK asset classes by a substantial margin. As an asset class, VC was performing well. Yet the share of capital provided by UK institutions was falling, with more than 70% of the money coming from the US.
The appeal of VC, the provision of equity finance to young companies with growth potential, is universal. Policymakers in the UK and Europe look enviously at the US, where the venture capital ecosystem is thriving (see boxes on pages 20-21). It remains a dominant force in the financing of innovative American companies. From Google to Intel to FedEx, these VC-backed companies have profoundly changed the US economy. A fifth of current public US companies received some VC financing. Three of the five largest companies in the world – Apple, Microsoft and Google – received most of their early external financing from VC.
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