Venture capital firms flourish

January 22, 1999

Venture capital has tripled in the United Kingdom in the 1990s but its economic benefits have not been shared equally by the regions, a Southampton and Ulster universities study reveals.

In 1992, about Pounds 1.25 billion was invested by venture capital firms compared with Pounds 3.06 billion in 1997. About Pounds 2 billion of 1997 investment went to support management buy-outs of established companies.

"Classical" venture capital funds for expansion of recently established firms, including university spin-offs, amounted to just over a billion. Of this about Pounds 160 million was invested in kick-starting new commercial ventures.

The southeast's dominant share fell from more than half in the 1980s to 42 per cent over 1992-97. Investment in the West Midlands, East Midlands, the northwest, Yorkshire and Humberside has grown. But Northern Ireland and Wales continue to lose out and Scotland has suffered a slight decline from 7.7 per cent of the total in 1992 to 6.4 in 1997.

The researchers say that while classical venture capital funding is strongly associated with wealth creation, support for management buy-outs is more linked to downsizing and job losses.

Overall, employment in venture capital-backed firms rose by 23 per cent per annum over 1994-98 compared with the national growth rate of 1.3 per cent. Exports from these firms grew by 44 per cent per annum against a national growth of 8 per cent.

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