UK public VC funds not well-spent say government auditors

The report concludes that the taxpayer is unlikely to receive financial returns on investment from the early funds. The £74 million invested in the Regional Venture Capital Funds, for example, is currently valued at £5.9 million and the UK government will get a financial return only if the individual funds outperform the preferential 10 per cent return to other investors. The economic benefits derived from the programme have yet to be measured.

Since 2000, the Department for Business, Innovation and Skills (BIS) and its predecessors have invested around £338 million in a series of venture capital funds to support young companies that find it difficult to obtain funding elsewhere. Nearly half of these businesses said they were not confident they could have got off the ground at all without money from these funds. Of those that felt they would have gone ahead, most felt they would have been more constrained without the public funding.

However, the Audit Office report says BIS failed to establish a robust framework, and associated baselines, against which to measure the impact of the funds, and its objectives were not clearly set out or prioritised. As a result, it not in a position to judge whether the taxpayers’ got value for money for the investment. BIS is now planning to strengthen its programme management and evaluation so that it is better able to demonstrate value for money.

At the same time, improvements have been made to the design of more recent funds to strike a better balance between protecting taxpayers’ interests and attracting other investors. And the report says the recent creation of Capital for Enterprise Limited, a company wholly-owned by BIS, has the potential to strengthen oversight of the funds.

Amyas Morse, head of the National Audit Office, said there is evidence that some businesses have benefited from the support of public venture capital funds. “But, in the absence of clear objectives and baselines from the start, coupled with poor financial performance to date of early funds, the programme cannot currently be said to demonstrate value for money.”

The former Department for Trade and Industry established the first of a series of taxpayer-supported venture capital funds in 2000 to bridge the gap in equity finance available for start-up businesses. The funds are administered by private sector fund managers, who are responsible for making investment decisions and offering businesses technical and managerial support.