HAVE UK VENTURE CAPITALISTS A BIAS AGAINST INVESTMENT IN NEW TECHNOLOGY-BASED FIRMS

This paper addresses the important question for innovation policy of w hether or not UK venture capital firms show a bias against investing i n technology-based, new and young enterprises. The evidence from UK an d US industry statistics indicates that, pro rata, American venture ca pital firms invest nearly three times as much finance into technology- based, start-up and early-stage investments as their UK counterparts w hen later stage, MBO/LBO investments are removed from the data. US ven ture capital firms are also more likely to invest at the earlier stage s of investment, while the UK industry has increasingly come to be dom inated by management buy-outs/buy-ins and other later-stage, refinanci ng activities. In 1991, a postal survey was conducted of 40 investing firms from a population of 75 UK venture capitalists which currently i nvest, or are prepared to consider investing, in technology-based comp anies. The sample was segregated into 'generalist funds' and 'technolo gy specialists' depending on the percentage (greater or less than 50%) of technology-based investee companies within the venture capitalists ' current portfolios. The results confirmed that technology projects h ad to meet more rigorous selection criteria than non-technology projec ts. In undertaking technology-based project evaluations, investors imp osed higher investment return 'hurdle rates' at each stage of investme nt other than seed capital. Technology-based projects were also more f requently required to address minimum markets greater than the UK alon e when compared to other investment categories. No material bias was f ound between the actions of generalist and specialist funds towards te chnology-based projects. The ratio of technology-based projects offere d to technology-based projects accepted was similar for both groups.