Big fall in UK venture capital investment

‘Venture Capital: now and after the Dotcom Crash’ compares current  venture activity trends withwhat happens after the dotcom crash, and finds this crisis has been compounded by the challenges facing entrepreneurs since 2002.

In particular, two new trends affect today’s market:

• The time taken to successfully exit, through a floatation or takeover, is getting longer. Across the world this averages almost seven and a half years, the longest period seen over the past two decades. This global trend is reflected in the UK market and is making it harder for funds to attract further investment.  

• Both the dotcom bust and the current financial crisis resulted in a significant reduction in the number of new venture capital funds established. Current fundraising activity is considerably lower than levels seen after the dotcom crash and stands at the lowest level seen in the last decade.

NESTA spots some promise amidst the gloom however, saying the fundamentals of the UK venture capital market appear sound, with evidence of funds exiting companies and making good returns. In addition, significant amounts of capital were invested in new companies between 2004 and 2007, and this is expected to bear fruit over the next few years.

Mike Lynch, Chairman of NESTA’s Investment Fund, said, “High growth technology start-ups will be critical to the UK’s recovery. Our ambition to rebalance the economy must take into account the difficulties of early stage investment.”

Last year saw the lowest level of venture capital investment in the UK in recent history, with the number of investments down by 17 per cent on 2008 and the total amount invested down from £930 million to £677 million, a fall of 27 per cent.