Gap revealed in UK venture capital market

Start-up businesses in the UK are less profitable than those from the US and this is causing a gap to form in venture capital investment, according to innovation charity Nesta.

The organisation’s new study, called Unchaining Investment: Barriers to US venture investment in UK internet and digital business [], reveals that the UK has become less attractive to start-up investors compared to the US and that the country lacks venture capital (VC) investment – where funding is provided to risky projects with high potential at an early stage.

Louise Marston, director of innovation and economic growth at Nesta, said, “Venture capital investment in the UK still struggles when compared to the US. Although performance has improved in recent years in both countries, average UK VC fund performance is 4 points below the US average.

“Yet VC funding is vital to innovation. Although it forms a small part of the market for business finance, it helps firms to invest more, grow more quickly, exit and bring radical innovations to market faster.”

According to Nesta research, which tried to understand what was more attracting for investors in the UK and US and possible obstacles, the UK’s venture funds get lower returns compared to the American ones and this gap is widening.

“Exit markets and immigration regulation stood out as areas of concern, but there are concerns in other areas too”, Marston said.

“There are still questions about how the UK can create a wider environment for start-ups that supports their growth.”

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