Companies sceptical of VC benefits

Industry body blames the ‘Dragons Den’ factor

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Many founders of what would be considered growth companies are sceptical about the benefits of venture capital to help them achieve their ambitions, according to research conducted by Coutts among its entrepreneur clients.

Nearly a quarter of the 244 people interviewed said they believed that venture capital investment would increase the risk of their business failing, while 19 per cent said they believed venture capital delivered sustainable growth.

The findings illustrate the extent of negative feeling against private equity funding despite the support it has given to many fast-growing companies.

In contrast to the negative perceptions of those who had not used venture capital funding, those in Coutts’ sample who had gained finance this way were far more positive, with only 13 per cent saying they regretted the move.

Those with experience of venture capital were twice as likely to select it as their preferred form of finance compared with those with no experience.

Coutts acknowledged that for many fast-growing businesses venture capital is not the best form of funding, although there are other forms of equity finance available.

Richard Green expanded his business, real-time location systems provider Ubisense, to a turnover of £25m with over £7m of investment, but not a penny from venture capital firms. Instead he took money from individual investors. “Our investors are serial entrepreneurs and we have no problem dealing with them,” he said.

Andrew Haigh, an executive director at Coutts, said that for companies seeking less than £2m in funding, it is better to use alternatives to institutional finance, such as wealthy individuals or investment syndicates.

However, he admitted that the research showed a real reluctance among many ambitious entrepreneurs even to consider private equity support.

”This should create a call to action for the VC world,” he said. “When your image is not so great there is a real business reason to shift that perception.”

he British Private Equity & Venture Capital Association said: “I think venture capital probably does suffer from a bit of an image problem, not helped of course by TV shows like Dragons Den.”

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