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Closing the Regional Equity Gap? A Critique of the Department of Trade and Industry's Regional Venture Capital Funds Initiative

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  • Colin Mason
  • Richard Harrison
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    Abstract

    MASON C. M. and HARRISON R. T. (2003) Closing the regional equity gap? A critique of the Department of Trade and Industry's regional venture capital funds initiative, Reg. Studies 37 , 855-868. The UK Labour Government has provided support for the establishment of regional venture capital funds in each of the English regions as part of its drive to create an entrepreneurially led knowledge- based economy. This initiative is a response to persistent gaps in the provision of start-up and early stage venture capital. In this paper we question the likely effectiveness of the initiative on four counts. First, there is a lack of early stage venture capital skills available to manage the funds. Second, the small size of the funds will make it difficult for them to achieve financial viability. Third, the funds are targeting the wrong problem. The maximum investment that they are allowed to make is �250,000; they may subsequently provide up to an additional �250,000 in follow-on financing. However, the main funding gap in the UK is in the �250,000 to �1 million range. Finally, the proposal ignores the role of demand-side constraints in contributing to the equity gap. The paper concludes that a more comprehensive approach is required to address equity capital gaps at the regional level. MASON C. M. et HARRISON R. T. (2003) L'acce s au capital, comment reduire l'ecart regional?: une critique de l'initiative du ministere du Commerce et de l'Industrie quant au capital-risque regional, Reg. Studies 37 , 855-868. Au Royaume-Uni, la majorite travailliste a ete favorable au lancement des fonds de capital-risque regionaux dans chacune des regions d' Angleterre comme partie integrante de sa campagne visant la cre ation d'une economie d'entreprise basee sur la connaissance. Cette intiative constitue une reponse a la presence persistante d'ecarts dans l'acces au capital risque de demarrage et de developpement. Cet article cherche a remettre en question l'efficacite eventuelle de l'initiative de quatre points de vue. Primo, il s'avere un manque de competences en capital risque dans la phase de developpement pour assurer la bonne gestion des fonds. Secundo, l'importance faible des fonds rendra difficile leur viabilite financiere. Tertio, les fonds ciblent le mauvais proble me. Dans un premier temps, l'investissement maximal autorise se chiffre a �250 000; dans un deuxieme temps, des fonds supple mentaires d'un montant de �250 000 sont autorises sous forme de financement additionnel. Toujours est-il que le principal ecart de financement au Royaume-Uni se trouve dans une fourchette comprise entre � 250 000 et �1m. Finalement, la proposition ne fait aucune attention au role des contraintes de la demande dans le creusement de cet ecart de financement regional. En guise de conclusion, l'article affirme qu'il faut une facon plus detaillee afin d'aborder la question des ecarts de financement sur le plan regional. MASON C. M. und HARRISON R. T. (2003) Schliessung der regionalen Kapitallucke?, Reg. Studies 37 , 855-868. Eine Kritik an der regionalen Initiative des Ministeriums fur Industrie und Handel zur Einrichtung von Beteiligungskapitalfonds Die Labour Regierung des Vereinigten Konigreichs hat in allen englischen Regionen der Einrichtung von Beteiligungskapitalfonds als Teil ihrer Aktion unterstutzt, eine unternehmerisch gefuhrte, auf Kenntnissen beruhende Wirtschaft zu schaffen. Diese Initiative stellt eine Erwiderung auf anhaltende Lu cken in der Bereitstellung von Kapital fur Anfanger und Jungunternehmer dar. In diesem Aufsatz wird die voraussichtliche Wirksamkeit der der Initiative in vierfacher Hinsicht in Frage gestellt. Erstens fehlt es an Fa higkeiten der Handhabung derartiger Fonds von Jungun- ternehmerkapital. Zweitens wird der geringe Umfang der Mittel es ihnen erschweren, finanzielle Rentabilitat zu erreichen. Drittens gehen die Fonds das falsche Problem an. Es ist ihnen nur gestattet, Investierungen von maximal �250,000 vorzunehmen; danach durfen sie zusatzlich hochstens weitere �250,000 gewahren. Die Mehrzahl der zu uberbruckenden Finanzierungslucken im UK liegen jedoch in der Region � 250,000-�1 mill. Letztlich aber gehen die Vorschlage an der Rolle der Beschrankungen seitens der Nachfrage vorbei, die zu der Kapitallucke beitragen. Der Aufsatz kommt zu dem Schluss, dass ein umfassenderer Ansatz vonnoten ist, wenn man die Probleme der Eigenkapitallu cken auf Regionalebene in den Griff bekommen will.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Regional Studies.

    Volume (Year): 37 (2003)
    Issue (Month): 8 ()
    Pages: 855-868

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    Handle: RePEc:taf:regstd:v:37:y:2003:i:8:p:855-868

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    Related research

    Keywords: Venture Capital; Regional Economic Development; Equity Gaps; Entrepreneurship; Business Angels;

    References

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    1. Evan J. Douglas & Dean Shepherd, 2002. "Exploring investor readiness: Assessments by entrepreneurs and investors in Australia," Venture Capital, Taylor & Francis Journals, vol. 4(3), pages 219-236, July.
    2. Cressy, Robert & Olofsson, Christer, 1997. " The Financial Conditions for Swedish SMEs: Survey and Research Agenda," Small Business Economics, Springer, vol. 9(2), pages 179-94, April.
    3. Gordon Murray, 1998. "A Policy Response to Regional Disparities in the Supply of Risk Capital to New Technology-based Firms in the European Union: The European Seed Capital Fund Scheme," Regional Studies, Taylor & Francis Journals, vol. 32(5), pages 405-419.
    4. Binks, Martin R & Ennew, Christine T, 1996. " Growing Firms and the Credit Constraint," Small Business Economics, Springer, vol. 8(1), pages 17-25, February.
    5. Gordon Murray, 1999. "Early-stage venture capital funds, scale economies and public support," Venture Capital, Taylor & Francis Journals, vol. 1(4), pages 351-384, October.
    6. Colin Mason & Richard Harrison, 2001. "'Investment Readiness': A Critique of Government Proposals to Increase the Demand for Venture Capital," Regional Studies, Taylor & Francis Journals, vol. 35(7), pages 663-668.
    7. Magnus Klofsten, 1999. "Supporting the pre-commercialization stages of technology-based firms: The effects of small-scale venture capital," Venture Capital, Taylor & Francis Journals, vol. 1(1), pages 83-93, January.
    8. John May, 2002. "Structured angel groups in the USA: The Dinner Club experience," Venture Capital, Taylor & Francis Journals, vol. 4(4), pages 337-342, October.
    9. Rebecca Harding, 2000. "Venture capital and regional development: Towards a venture capital 'system'," Venture Capital, Taylor & Francis Journals, vol. 2(4), pages 287-311, October.
    10. Gupta, Anil K. & Sapienza, Harry J., 1992. "Determinants of venture capital firms' preferences regarding the industry diversity and geographic scope of their investments," Journal of Business Venturing, Elsevier, vol. 7(5), pages 347-362, September.
    11. Thompson, Steve & Wright, Mike, 1995. "Corporate Governance: The Role of Restructuring Transactions," Economic Journal, Royal Economic Society, vol. 105(430), pages 690-703, May.
    12. Wright, Mike & Thompson, Steve & Robbie, Ken, 1992. "Venture capital and management-led, leveraged buy-outs: A European perspective," Journal of Business Venturing, Elsevier, vol. 7(1), pages 47-71, January.
    13. Goran Lindstrom & Christer Olofsson, 2001. "Early stage financing of NTBFs: An analysis of contributions from support actors," Venture Capital, Taylor & Francis Journals, vol. 3(2), pages 151-168, April.
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    Cited by:
    1. Gil Avnimelech & Alessandro Rosiello & Morris Teubal, 2010. "Evolutionary interpretation of venture capital policy in Israel, Germany, UK and Scotland," Science and Public Policy, Oxford University Press, vol. 37(2), pages 101-112, March.
    2. Alessandro Rosiello & Stuart Parris, 2009. "The patterns of venture capital investment in the UK bio-healthcare sector: the role of proximity, cumulative learning and specialisation," Venture Capital, Taylor & Francis Journals, vol. 11(3), pages 185-211, February.
    3. V. Collewaert & S. Manigart & R. Aernoudt, 2007. "An Assessment Of Government Funding Of Business Angel Networks: A Regional Study," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/455, Ghent University, Faculty of Economics and Business Administration.
    4. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    5. José Ernesto Amorós & Miguel Atienza & Gianni Romaní, 2008. "Formal and Informal Equity Funding in Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 35(2 Year 20), pages 179-194, December.
    6. Cécile Carpentier & Jean-Marc Suret, 2005. "On the Usefulness of Tax Incentives for Business Angels and SME Owners: An Empirical Analysis," CIRANO Working Papers 2005s-13, CIRANO.
    7. Veroniek Collewaert & Sophie Manigart & Rudy Aernoudt, 2010. "Assessment of Government Funding of Business Angel Networks in Flanders," Regional Studies, Taylor & Francis Journals, vol. 44(1), pages 119-130.
    8. Alessandro Rosiello & Morris Teubal & Gil Avnimelech, 2008. "Towards the Framing of Venture Capital Policies: a Systems-Evolutionary Perspective with Particular Reference to the UK/Scotland and Israeli Experiences," ICER Working Papers 21-2008, ICER - International Centre for Economic Research.
    9. Dafna Schwartz & Raphael Bar-El, 2006. "Venture Investments in Israel - A Regional Perspective Dafna Schwartz and Raphael Bar-El Ben-Gurion University, School of Management, Israel," ERSA conference papers ersa06p868, European Regional Science Association.

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