UK venture capital braced for tough year ahead

One in five UK venture capitalists fears their average portfolio company is at risk of collapsing within six months unless they raise more money.

In a survey conducted by Populous on behalf of the British Venture Capital Association, 45% of the 80 respondents believe their average portfolio company that is already trading, will last no longer than 12 months on current cash reserves.

The report – the Venture Capital Outlook Survey 2009 – paints a bleak picture as it finds British VCs in poor spirits. Almost three-quarters expect total investment to fall in 2009 from 2008, whilst 84% replied it has been “hard” to raise money for B and C rounds.

Fifty-one percent feel the fund raising environment is “much more difficult” over the last 12 months compared to the previous 10 years.

For the BVCA, the solution to the VC problem is Government support. Simon Walker, chief executive of the BVCA, said: “There is a golden opportunity for entrepreneurial young businesses right now. The last 10 years have produced a stable of innovative UK start-up companies, producing world-leading products and services. Many VC firms have raised significant funds in recent years and are using these funds actively to support existing portfolio companies through recession. For new entrepreneurial companies to emerge as the next generation’s global leaders, the sector requires more capital at just the time when institutions are unable to commit new funds. Government can assist by exploring ways to encourage greater institutional investment, potentially acting as a catalyst for this investment.”

The comment comes after the technology and innovation body NESTA (The National Endowment for Science, Technology and the Arts) called for a state-sponsored £1bn venture capital fund for high growth technology start-ups in December.