Ithaka Life Sciences - Blog

Ithaka Life Sciences Ltd (Ithaka) is a provider of business advisory and interim management services to the life sciences sector.

Monday, 24 August 2009

Stimulating venture capital investment in the UK regions

A few years ago I was working with a couple of very promising biotech spin out companies from Sheffield University in the North of England trying to help them raise venture capital (VC) investment. I found it a real struggle to engage the interest of London-based VC funds – not because of the lack of a compelling investment proposition, but simply because Sheffield was considered to “on another planet” and the journey from London to Sheffield too onerous for our London friends. Eventually I did persuade a couple of fund managers to make the journey on the basis that I would arrange for them to see three potential investments in the one visit (a novel form of “buy one get one free”).
I was reminded of this story when reading a recent publication by The Northern Way entitled “Realising the £25bn Potential: Stimulating the long term private venture capital markets in the regions” (the paper can be downloaded from (http://www.thenorthernway.co.uk/downloaddoc.asp?id=650). For those of you that aren’t aware of it, The Northern Way is an initiative (set up by John Prescott, the pugilistic ex-Deputy Prime Minister of the UK) bringing together the cities and regions of the North of England to work together to improve the sustainable economic development of the North towards the level of more prosperous regions.
The Northern Way report seeks to answer the following questions:
Why are small and medium sized companies in the North not accessing as much equity finance as they need to grow?
Is the North less growth orientated and entrepreneurial and more equity averse?
Or are the funding institutions in the South East too far from the action and fail to recognise good investment opportunities?
The report concludes that the UK is failing to develop the full growth potential of many of its companies because its VC businesses are too heavily concentrated in London. Geographical disparity in the spread of private VC investment means, it says, that the equity gap – the shortfall in investment funds available to businesses looking to grow – is disproportionately felt by businesses outside the greater south-east.
The Northern Way calls on government to make building private sector capacity in major cities outside the south east an explicit objective and to create a public-private fund to help generate activity. It recommends an approach with echoes of the old 3i model (for those of you that aren’t as old as me, 3i used to have a network of regional offices across the UK), it suggests a national network of locally based fund managers in all major UK cities, able to tap into a critical mass of public and private funding, with flexibility to act on a commercial basis, tailoring deals to local business needs.
The report findings certainly chime with my own experiences in the biotech sector and, as a northerner myself, I certainly have a lot of support for any initiatives to unlock the entrepreneurial potential across the UK regions. In my opinion, the UK biotech sector spends far too much time focusing on the so called golden triangle of London, Cambridge and Oxford.

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