Gordon Brown is going to put £1bn into a venture capital fund for early-stage funding of high-tech companies.
The plan is the brainchild of the National Endowment for Science, Technology and the Arts (Nesta) and is backed by the science and innovation minister, the former racing driver, and founder of Powderject Pharmaceuticals, Lord Paul Drayson.
The universities have been encouraging high-tech start-ups into incubators, and these are emerging into the commercial world looking for initial financial backing.
However, just as a regular stream of high-tech start-ups is emerging from universities and the incubators into the commercial world looking for financial backing, come signs that early-stage funding of companies is beginning to dry up.
Stuart McKnight, CEO of the technology-focussed investment group Ascendant, told EW: “There has been a shift of focus away from 1st and 2nd stage deals. This indicates to us that the market is beginning soften. We are actively involved in a number of fund raising deals and know that many investors are not anticipating closing any further deals in 2008 and are very particular about what they will consider in Q1.”
Compared with last year, investors are completing less first and second round deals (64% of deals in 2008 vs 72% of deals in 2007) and are favouring later stage companies.
“I think there’s a consensus in government that something needs to be done quickly,” said Nesta chief executive, Jonathan Kestenbaum.
The expectation is that the government’s £1bn venture fund will kick off next year with contributions solicited from private equity funds, businesses, university early stage funding schemes and conventional venture capitalists which have recently been reluctant to get into early stage funding rounds.