It would seem that Wales isn't the only region that has problems with public investment into businesses.According to an article in yesterday's FT, an investment by taxpayers of £74 million into regional venture capital funds has been marked down to just £5 million according to a report that is highly critical of the government’s wider venture capital programme.
Since 2000, the Department for Business has invested £338 million in 28 venture capital funds – through seven umbrella schemes – that have provided seed money to more than 800 companies.
According to a report from the Commons’ public accounts committee:
- Funds were structured in a way that taxpayers bore a “disproportionate” share of the risks involved when compared with private sector co-investors.
- Whilst the Department for Business has provided “scant information” about the performance of the funds, using “restrictive” confidentiality clauses, it appears that many made annual losses.
- One of the seven umbrella schemes - the Regional Venture Capital Funds (RVCF) - has reported an interim rate of return of -15.7 per cent, far worse than the -0.4 per cent delivered by other similar European funds.
- Many of the funds have been paying high costs to private sector fund managers. The RVCF, for example, spent £46 million in fees against £130 million invested up to December 2008.
- The taxpayers’ investment of £74 million in the RVCF is now worth only £5 million – a drop of about 93 per cent
- According to the National Audit Office, venture capital funds had taken a loss on four out of five investments they had sold – 189 write-offs since 2000 against just 45 profitable exits.
- The Department of Business failed failing to establish basic economic and financial objectives when it was setting up the funds and did not evaluate them for eight years
Given this performance, one has to question whether putting more money into publicly funded venture capital funds, as suggested by the Deputy First Minister recently, is the way forward.
Comments
Wonder what happened to the perception evaluation they were undertaking
Like everything else the results seem to go down a black hole
Bit like the evaluation of the Older Persons Commissioner - thats never surfaced either
With Finance Wales more difficult to deal with than a bank and charging double the interest we need investment for high risk ventures.
Money better spent than pumping it through the 'business advice' industry.
VM - WAG seems to forget, conveniently, that Finance Wales, is owned by the Welsh taxpayer and is accounatble to them. yet no one from finance wales has appeared before any Assembly Committee for a number of years?
Andrew - I agree. the point I was making is that the current model is flawed and we should instead be looking to emulate best practice elsewhere.
On Saturday, I will be writing on an interview I had with Michael Moritz, one of the world's greatest VCs and discussing the success of Israel, which has similar VC funds but are managing them far more successfully.