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Analysis of the attractiveness of the UK venture capital industry

Private Equity and Venture Capital Report on Investment Activity 2008’ in its survey has determined that worldwide the investment has seen a steady rate of growth with a few undulations in the last three decades (Coups, 2009). There was a steady spurt in investment from year 2003 onwards until it peaked at 31,634 £m in 2007. In 2008 it fell by 11,609 £m probably due to the effects of worldwide recession but still maintained a healthy figure (Fig.1).In the UK, the investment figure was 10,227 £m in 2006, rose to 11, 972 £m in 2007 but fell sharply to 8556 £m in 2008 (Coups, 2009). All asset classes have now suffered due to the impact of worldwide recession and Private Equity is no exception. However such funds which were raised during previous such downtrends in the years 1991-94 and 2001-03 did produce outstanding results for the investors (BVCA, 2009). Over long term, UK private equity has outperformed other asset classes in a comprehensive manner. The annual IRR in 2008 for all funds was -9.8% which compares favourably with public equity market performance (BVCA, 2009). In fact over a span of the last ten years private equity returns per annum were approximately ten times higher than that of the FTSE All-Share Index and four times more than the pension average (BVCA, 2009).When considered region wise, investment in the years 2007 and 2008 has been steady enough throughout the United Kingdom, but there was a major fall in the financial capital of the country, London where it fell from 5730 £m in 2007 to 3590 £m. Almost similar decline was observed in the South East, East Midlands and the North West. In the East of England, Yorks and Humb and West Midlands investment figures did not change much in these two years. Surprisingly, investment rose remarkably to 1052 £m in 2008 from 393 £m in 2007 in Scotland (Coups, 2009). The major investment was in UK Technology Companies where 596 £m was invested in 2008 as compared to 835 £m in 2007. Particularly

Analysis of the attractiveness of the UK venture capital industry