Venture capital (VC) investing outside London and the South East depends heavily on public sector funds, according to a study.

Venture capital (VC) investing outside London and the South East depends heavily on public sector funds, according to a study.

More than half of all investments in other UK regions since 2001 have involved publicly financed VC funds, finds the research from the University of Strathclyde and government enterprise support body NESTA.

In 2008 the share of early-stage investments relying on government-backed funds rose to between 80 and 90 per cent.

The authors of the report say the trend is due to a decline in private VC funds following the dotcom crash, as well as the rise of government initiatives aiming to plug the gap.

They claim the findings are worrying because ‘although government-backed VC schemes have had a positive effect on company performance and job creation, this effect has been significantly less than the effects that purely private venture capital would be expected to bring.’

However, withdrawing public money for regional VC funds would only widen the regional divide between the South East of England and the rest of the UK, the report concludes.