Supporting British VC

It’s coming up for two years since Simon Walker took the top job at the UK’s private equity trade body the BVCA, and in that time the economy has hit the buffers and the buyouts boom has gone bust, but the work of the association hasn’t stopped; producing numerous studies in the industry as part of the drive towards transparency and playing a leading role in lobbying the EU Commission on its regulatory proposals.

As part of EVCJ’s ongoing ‘Championing Venture Capital’ series, Tom Allchorne speaks to Walker to ask what the organisation is doing to raise awareness of the asset class.

Why is venture capital important to the British economy?

Venture capital provides the springboard from which companies can realise their potential and deliver tangible benefits across many areas of the economy, from medical technology and drug discovery, to software and innovative manufacturing solutions.

Venture capital provides young companies with the access to finance, crucial managerial expertise, contacts and organisation to scale up and continue to develop innovative new products and services.

Without venture capital, many young companies would struggle on, never fully realising their potential and some would ultimately not survive.

Is the Government doing enough to support entrepreneurship and the venture capital industry?

We are entering a whole new environment in which supporting entrepreneurship will be more crucial than ever. This will necessitate a new approach requiring a fresh look at the tried and tested model of government intervention in the venture capital space.

In order to meet the economic challenges of the next decade, as well as the social and environmental ones, Britain needs to move away from its dependence on financial services and towards a new model of growth based on greater technological innovation.

Venture capital investment has, historically, been one of the key sources of capital and expertise for innovative businesses. We would like to see the Government take a lead in supporting the venture capital community by ensuring that a significant proportion of the £750m Strategic Investment Fund announced in the budget is set aside to support innovative young companies. We believe government support via a fund-of-funds approach is the best way to grow young businesses and renew the relationship between venture capital firms and institutional investors.

What is the BVCA doing to promote venture capital in the UK?

Since re-launching our venture capital committee last November we have been pushing very hard to raise awareness of the particular issues facing the venture capital community.

Alongside our championing of a government measure, we have been working hard to correct the anomaly which prohibits small company tax reliefs being extended to venture capital-backed companies.

We have supported Anne Glover in her review of government procurement policies, actively working for change in this area and we continue to ensure our policy goals are supported by robust research efforts.

We recently published a report which compared the development of the venture capital market in the UK to Israel and the US and in the next couple of months will be publishing a report, alongside NESTA, examining the role of government in stimulating venture capital investment.

We also regularly meet with LPs to persuade them of the benefits of investing in venture capital.

In the May issue of EVCJ, Guy Fraser-Sampson said the BVCA and the EVCA were too tied to the buyouts industry to adequately promote venture capital. Do you think this is fair?

Our buyout members play a vital role in supporting BVCA initiatives, but it is unfair to suggest this distracts us from adequately supporting our venture members. I concede this accusation may once have been fairly levelled, but our own root and branch overhaul ensures that we are well-equipped to represent all segments of our membership.

We have made significant progress in raising awareness of the value of venture capital and its importance to the future health and competitiveness of Britain and our efforts in this area will remain unstinting.

Why should institutional investors invest in UK VC?

The UK venture capital market is second only to the US. We have exciting centres of entrepreneurial and scientific excellence in Cambridge, London and Sheffield, to name but three and we have the managers with the track-record able to capitalise on the opportunities. Ultimately this must to translate into decent returns and recent evidence suggests that since 2003, and the onset of the venture recovery, good aggregate returns have been made by venture managers.

Do you think there is a prejudice amongst investors against venture capital?

Some institutional investors are most certainly reluctant to give venture capital another look after their experience during the technology boom and bust. Many got their fingers burnt by investing in unproven managers which in turn backed flimsy technology, usually internet-based, businesses.

While certainly a testing period for the industry, the technology crash has helped professionalise venture capital and what remains is a core of road-tested managers with the proven ability to grow companies and generate healthy returns. The hang-over has lasted far too long and it is up to us to change perceptions and convince investors that the venture model of 2009 is a world away from venture in 1999.

What can be done to encourage investors to invest more?

The crash continues to skew returns numbers and is not a reliable guide to current and future performance. We have recently calculated returns figures from 2003, which better reflect the current state of the industry and the managers operating in it.

This fresh perspective is coaxing investors to look again at what venture can offer. Ensuring that the venture story is adequately told and case studies of successful investments are more widely known is another useful way to persuade investors to reconsider the asset class.

We’ve also got to emphasise that it will be venture-backed businesses and technology which will help shape a re-modelled, re-energised and more modern Britain fit to tackle the many challenges facing us in the years to come.

Finally, venture capital managers must prove their worth by continuing to successfully invest and make returns for their investors. If returns remain on an upward curve, and I have every reason to believe they will, it will not be long before we see greater institutional commitment to venture capital.