A fascinating report on venture capital investment has shown the major challenges that we face as a nation in attracting the right type of finance to support the technologies of the future.
The 2008 Global Venture Capital Survey, published last week by Deloitte, measured the opinions of almost 400 venture capitalists worldwide. It found, not surprisingly, that the USA remains the global leader in technological innovation, although Europe leads the way in fast growing new sectors such as clean technologies and life sciences, particularly within Germany and the UK.
For the Welsh Assembly Government’s approach to supporting new innovative businesses, there are certainly lessons to be learnt from German policymakers who have developed an unambiguous and visionary strategy for the development of key sectors.
The combination of a strong technology base, entrepreneurial businesses and, most importantly, a well conceived public policy towards clean technologies in Germany has created a new industry that is the envy of other nations. More importantly, it is attracting the attention of venture capitalists with the financial clout to support the further development of this technology.
As this column has mentioned before, we need to start to get our act together in terms of developing new areas within clean technologies and environmental services if we are to increase the prosperity of this nation, not least because of the expertise we already have within these areas.
In addition, these are sectors which venture capitalists overwhelmingly predict will obtain higher levels of venture financing in 2008. Given this, it could be argued that we must work harder to transform the intellectual property within our academic sector into products and processes that will attract investment for future development.
Certainly, we have the technologies within our university sector but there is clearly a problem in getting the venture capitalists to come down the M4 to examine the potential that exists within our laboratories.
Perhaps the problem for Wales is that we are wrongly perceived as being too far away from the business centres and this creates a barrier for potential investees. Indeed, research has shown that nearly all venture capital funds have a preference towards making investments in businesses within a close geographical proximity. With the majority of funds to be found in London and the South East of England, it is not surprising to find that the greatest number of investments are made there.
Of course, venture capital funds will also tend to cluster around existing centres of the finance industry due to the greater supply of labour with the required skills. They will also look to those areas with greater access to lower transport costs, communication networks, specialised customers and technology, and knowledge-based industrial clusters.
It should therefore come as no surprise that, in 2006, London and the South East of England accounted for 60 per cent of the £10.2 billion of venture capital invested in the UK. In contrast, Wales attracted £61million of venture capital investment in 59 firms, or 0.6 per cent of the venture capital investment. This is despite the presence of dedicated public equity funds managed by Finance Wales and supported through European Structural Funding.
Therefore, it is a vicious circle for regions such as Wales. Low rates of business start-up and little venture capital presence will result in entrepreneurial businesses and venture capital firms being likely to look elsewhere for new investments.
As a result, Wales could remain in a state of low demand and supply of venture capital if the situation remains the same. This is not to say that the situation cannot change and it is only fair to say that a few recent developments are heartening for the future of welsh business.
First of all, it is excellent news for Wales that Sir Chris Evans and Professor Jeremy Stone have joined forces to create Excalibur – a new fund focusing on the medical sciences sector. Hopefully, they will be able to attract new innovations in this field and begin to make Wales a centre of excellence in this area.
The deal between Biofusion and Cardiff University in managing that institution’s intellectual property is also beginning to bear fruit and will undoubtedly result in considerable spin-off successes in the future.
Finally, many have been heartened by the willingness of International Business Wales to adopt a new approach to attracting business into Wales. If some of that effort could be focused on getting venture capitalists from not only London, but New York, San Francisco, Singapore and other global financial and research centres to look at Wales as a potential area for future investments, then it won’t be long before the excellent ideas emerging from welsh innovators finally get the financial support they deserve.
The 2008 Global Venture Capital Survey, published last week by Deloitte, measured the opinions of almost 400 venture capitalists worldwide. It found, not surprisingly, that the USA remains the global leader in technological innovation, although Europe leads the way in fast growing new sectors such as clean technologies and life sciences, particularly within Germany and the UK.
For the Welsh Assembly Government’s approach to supporting new innovative businesses, there are certainly lessons to be learnt from German policymakers who have developed an unambiguous and visionary strategy for the development of key sectors.
The combination of a strong technology base, entrepreneurial businesses and, most importantly, a well conceived public policy towards clean technologies in Germany has created a new industry that is the envy of other nations. More importantly, it is attracting the attention of venture capitalists with the financial clout to support the further development of this technology.
As this column has mentioned before, we need to start to get our act together in terms of developing new areas within clean technologies and environmental services if we are to increase the prosperity of this nation, not least because of the expertise we already have within these areas.
In addition, these are sectors which venture capitalists overwhelmingly predict will obtain higher levels of venture financing in 2008. Given this, it could be argued that we must work harder to transform the intellectual property within our academic sector into products and processes that will attract investment for future development.
Certainly, we have the technologies within our university sector but there is clearly a problem in getting the venture capitalists to come down the M4 to examine the potential that exists within our laboratories.
Perhaps the problem for Wales is that we are wrongly perceived as being too far away from the business centres and this creates a barrier for potential investees. Indeed, research has shown that nearly all venture capital funds have a preference towards making investments in businesses within a close geographical proximity. With the majority of funds to be found in London and the South East of England, it is not surprising to find that the greatest number of investments are made there.
Of course, venture capital funds will also tend to cluster around existing centres of the finance industry due to the greater supply of labour with the required skills. They will also look to those areas with greater access to lower transport costs, communication networks, specialised customers and technology, and knowledge-based industrial clusters.
It should therefore come as no surprise that, in 2006, London and the South East of England accounted for 60 per cent of the £10.2 billion of venture capital invested in the UK. In contrast, Wales attracted £61million of venture capital investment in 59 firms, or 0.6 per cent of the venture capital investment. This is despite the presence of dedicated public equity funds managed by Finance Wales and supported through European Structural Funding.
Therefore, it is a vicious circle for regions such as Wales. Low rates of business start-up and little venture capital presence will result in entrepreneurial businesses and venture capital firms being likely to look elsewhere for new investments.
As a result, Wales could remain in a state of low demand and supply of venture capital if the situation remains the same. This is not to say that the situation cannot change and it is only fair to say that a few recent developments are heartening for the future of welsh business.
First of all, it is excellent news for Wales that Sir Chris Evans and Professor Jeremy Stone have joined forces to create Excalibur – a new fund focusing on the medical sciences sector. Hopefully, they will be able to attract new innovations in this field and begin to make Wales a centre of excellence in this area.
The deal between Biofusion and Cardiff University in managing that institution’s intellectual property is also beginning to bear fruit and will undoubtedly result in considerable spin-off successes in the future.
Finally, many have been heartened by the willingness of International Business Wales to adopt a new approach to attracting business into Wales. If some of that effort could be focused on getting venture capitalists from not only London, but New York, San Francisco, Singapore and other global financial and research centres to look at Wales as a potential area for future investments, then it won’t be long before the excellent ideas emerging from welsh innovators finally get the financial support they deserve.
Comments
This is wrong. Most venture capitalists I know will go to the ends of the Earth (and beyond)in pursuit of a good deal or a commercially viable innovation.
Let's face it, the truth is it is not worth their time to do so in Wales because the level of innovation in Welsh universities is not of an advanced or high enough standard and that there are too many hoops to jump through or the academic mindset cannot cope with the business world.
It's a no-brainer that venture capital funds tend to cluster - you only have to look at the example of the Research Triangle Park in North Carolina or Silicon Valley in California for that matter to prove this. Both these areas generate a higher GDP than the entire economy of Wales by themselves. Why do we need research to tell us an obvious fact?
The trick is to study the factors that contributed to the success of these powerhouses of innovation and attempt to recreate it in Wales. If this could be done, even in miniature, the venture capital funds will flow as day follows night. Mind you saying that reminds me that I wouldn't let a venture capitalist (of the usual sort) anywhere near my business if I had a good idea!