News from Cass Business School

Cass Professor calls for government-backed VC funds to be restructured

Saturday, 7 November, 2009

Start-up ventures are benefiting from government-backed venture capital (VC) funds, however, there are too many of these funds and they are too small to be truly effective, according to a new report from Charles Baden-Fuller, Professor of Strategy at Cass.
The report, produced by a consortium of leading UK universities including Cass, assesses the impact of various government interventions over the last 10 years in the venture capital market and makes new policy suggestions.
It reveals that 782 firms supported by publicly funded VC funds have grown faster than similar firms outside the programme. Over the last decade the government has poured in £2.6 billion in support of young growth oriented enterprises.
Despite this, Professor Baden-Fuller and co-contributor Professor Gordon Murray from the University of Exeter say that even better results could be achieved if the government backed VC funds were structured differently.
There is too little money chasing too few firms, Professor Murray says. If the UK is to reach its potential, the government will have to provide greater financing as well as other support.
Our report criticises the small and inefficient size of many of the publically supported funds, and the inability of many funds to provide follow-on’ financing.
Professor Baden-Fuller says that government policymakers cannot focus exclusively on financing start-ups without recognising the need to improve the quality of both managers and their products and services through better recruitment and training of managers and advisors.
Young enterprises increasingly face very aggressive international competition and for this reason the government should provide support for bigger and more sophisticated funds that offer both money and access to human capital, Professor Baden-Fuller says.
The study, Thin Markets, was sponsored by the BVCA and NESTA and undertaken by eight authors from five leading universities including Exeter, Leeds, Strathclyde Sussex and Cass Business School, London.
Another problem identified by Professor Baden-Fuller’s research is that while there are many young firms in the UK that would like financial backing, few of them lack the potential to grow into enterprises with a significant turnover.
The UK needs to generate 50-60 high potential firms a year, most likely to be in the high technology space, and one in 10 of these needs to perform exceptionally. Currently we do not have enough good candidates which is hindering success, Professor Baden-Fuller says.

Permanent link to this story: https://www.cass.city.ac.uk/news/2009/november/cass-professor-calls-for-government-backed-vc-funds-to-be-restructured
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