Problems relating to a slower and less profitable exit market and access to advice and information are holding back the UK start-up community, according to new research.
Nesta’s new report, Unchaining Investment: Barriers to US venture investment in the UK internet and digital businesses, has looked at the factors which influence US funds’ decision to invest in UK start-ups.
The study finds that there are a number of reasons why there is a lack of venture capital investment in British start-ups from American venture funds, with the role that regulation plays in attracting US capital cited as a particular hurdle.
It also suggests that less profitable UK exits may be persuading UK companies to incorporate in the US in the hope of securing a more lucrative IPO.
Louise Marston, director of innovation and economic growth at Nesta, comments, ‘Venture capital investment in the UK still struggles when compared with the US.
‘Although performance has improved in recent years in both countries, average UK VC fund performance is four points below the US average.’
Marston believes that VC funding is, although only a small part of the market for business finance, vital to innovation as it helps businesses to bring ‘radical’ innovations to market faster.
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Nesta’s conclusions come despite a number of UK start-ups closing large Series A rounds during 2013. Earlier in June, General Catalyst Partners has led a £7.8 million Series A investment into YPlan alongside existing backers Octopus Investments and Wellington Partners.
A month before, venture capital firm Balderton Capital contributed £7.1 million to an £8.5 million investment round into Urturn.
Evidence from Nesta suggests that there are sectoral and locational differences between the US and UK, and that both countries have good and poor fund performers.
It highlights The Entrepreneurs’ Visa and Seed Enterprise investment Scheme as developments which were particularly welcomed by investors.
