'Lost Generation of Innovation' Feared as Investment Levels Fall; Private Equity and Venture Capital Activity below Pounds 20bn

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Byline: Si'n Barry

PRIVATE equity and venture capital investment by UK-based firms in 2008 fell below pounds 20bn for the first time since 2005.

According to preliminary data in the British Private Equity and Venture Capital Association's (BVCA) forthcoming report on investment activity, investment dropped to pounds 19.5bn in 2008 compared to pounds 31.6bn in 2007 and pounds 21.8bn in 2006.

The number of companies receiving private equity or venture capital backing also fell, from 1,680 in 2007 to 1,571 in 2008.

These preliminary figures reflect the worsening of credit conditions through 2008 and the onset of recession.

However, in comparison with the decade as a whole, rather than the exceptional 2006-07 period, investment in 2008 was robust.

The pounds 19.5bn invested in 2008 almost equalled the total for 2004 and 2005 combined (pounds 21.3bn) and exceeded that of 2001, 2002 and 2003 put together (pounds 18bn).

In Wales last year there were 44 deals valued at pounds 112m, compared to 36 in 2007 at pounds 128m. In 2006 there were 59 valued at pounds 61m.

The report also shows that UK-based private equity and venture capital firms raised pounds 23.1bn in 2008, a decline from the pounds 29.2bn raised in 2007 and considerably below the record pounds 34.3bn raised in 2006.

These numbers do not include the impact of any investor commitments cancelled subsequent to a formal fund close. North America continues to dominate as a source of fund-raising, contributing pounds 10.4bn or 45% of the total, while funds raised from UK sources was pounds 5.6bn or 24% of the total (in 2007, North America and the UK contributed 42% and 25%, respectively).

Early-stage investment in UK-based companies declined to pounds 346m, a pounds 600m drop from 2006 and a significant decline from the pounds 434m invested in 2007. The number of companies financed fell from 502 in 2007 to 441 in 2008.

Total management buyout/buy-in value by UK firms declined considerably, to pounds 8.7bn in 2008 from pounds 20.2bn in 2007.

Regionally, London and the South East saw investment levels drop to just over pounds 4.5bn, compared to pounds 8.2bn last year. The number of companies receiving private equity or venture capital backing also fell away year-onyear, from 554 to 460.

Like Wales all other regions in England also experienced falling investment levels in comparison to 2007 (the West Midlands remained static), although the volume of companies financed increased in a number of regions, including Yorkshire & the Humber, where 119 investments were completed in 2008, compared to 108 in 2007, the North West, which saw volume increase from 154 to 171 and in the North East 55 companies were funded compared to 51 last year. …