IDEAS home Printed from https://ideas.repec.org/a/taf/regstd/v37y2003i8p855-868.html
   My bibliography  Save this article

Closing the Regional Equity Gap? A Critique of the Department of Trade and Industry's Regional Venture Capital Funds Initiative

Author

Listed:
  • Colin Mason
  • Richard Harrison

Abstract

MASON C. M. and HARRISON R. T. (2003) Closing the regional equity gap? A critique of the Department of Trade and Industry's regional venture capital funds initiative, Reg. Studies 37 , 855-868. The UK Labour Government has provided support for the establishment of regional venture capital funds in each of the English regions as part of its drive to create an entrepreneurially led knowledge- based economy. This initiative is a response to persistent gaps in the provision of start-up and early stage venture capital. In this paper we question the likely effectiveness of the initiative on four counts. First, there is a lack of early stage venture capital skills available to manage the funds. Second, the small size of the funds will make it difficult for them to achieve financial viability. Third, the funds are targeting the wrong problem. The maximum investment that they are allowed to make is £250,000; they may subsequently provide up to an additional £250,000 in follow-on financing. However, the main funding gap in the UK is in the £250,000 to £1 million range. Finally, the proposal ignores the role of demand-side constraints in contributing to the equity gap. The paper concludes that a more comprehensive approach is required to address equity capital gaps at the regional level. MASON C. M. et HARRISON R. T. (2003) L'acce s au capital, comment reduire l'ecart regional?: une critique de l'initiative du ministere du Commerce et de l'Industrie quant au capital-risque regional, Reg. Studies 37 , 855-868. Au Royaume-Uni, la majorite travailliste a ete favorable au lancement des fonds de capital-risque regionaux dans chacune des regions d' Angleterre comme partie integrante de sa campagne visant la cre ation d'une economie d'entreprise basee sur la connaissance. Cette intiative constitue une reponse a la presence persistante d'ecarts dans l'acces au capital risque de demarrage et de developpement. Cet article cherche a remettre en question l'efficacite eventuelle de l'initiative de quatre points de vue. Primo, il s'avere un manque de competences en capital risque dans la phase de developpement pour assurer la bonne gestion des fonds. Secundo, l'importance faible des fonds rendra difficile leur viabilite financiere. Tertio, les fonds ciblent le mauvais proble me. Dans un premier temps, l'investissement maximal autorise se chiffre a £250 000; dans un deuxieme temps, des fonds supple mentaires d'un montant de £250 000 sont autorises sous forme de financement additionnel. Toujours est-il que le principal ecart de financement au Royaume-Uni se trouve dans une fourchette comprise entre £ 250 000 et £1m. Finalement, la proposition ne fait aucune attention au role des contraintes de la demande dans le creusement de cet ecart de financement regional. En guise de conclusion, l'article affirme qu'il faut une facon plus detaillee afin d'aborder la question des ecarts de financement sur le plan regional. MASON C. M. und HARRISON R. T. (2003) Schliessung der regionalen Kapitallucke?, Reg. Studies 37 , 855-868. Eine Kritik an der regionalen Initiative des Ministeriums fur Industrie und Handel zur Einrichtung von Beteiligungskapitalfonds Die Labour Regierung des Vereinigten Konigreichs hat in allen englischen Regionen der Einrichtung von Beteiligungskapitalfonds als Teil ihrer Aktion unterstutzt, eine unternehmerisch gefuhrte, auf Kenntnissen beruhende Wirtschaft zu schaffen. Diese Initiative stellt eine Erwiderung auf anhaltende Lu cken in der Bereitstellung von Kapital fur Anfanger und Jungunternehmer dar. In diesem Aufsatz wird die voraussichtliche Wirksamkeit der der Initiative in vierfacher Hinsicht in Frage gestellt. Erstens fehlt es an Fa higkeiten der Handhabung derartiger Fonds von Jungun- ternehmerkapital. Zweitens wird der geringe Umfang der Mittel es ihnen erschweren, finanzielle Rentabilitat zu erreichen. Drittens gehen die Fonds das falsche Problem an. Es ist ihnen nur gestattet, Investierungen von maximal £250,000 vorzunehmen; danach durfen sie zusatzlich hochstens weitere £250,000 gewahren. Die Mehrzahl der zu uberbruckenden Finanzierungslucken im UK liegen jedoch in der Region £ 250,000-£1 mill. Letztlich aber gehen die Vorschlage an der Rolle der Beschrankungen seitens der Nachfrage vorbei, die zu der Kapitallucke beitragen. Der Aufsatz kommt zu dem Schluss, dass ein umfassenderer Ansatz vonnoten ist, wenn man die Probleme der Eigenkapitallu cken auf Regionalebene in den Griff bekommen will.

Suggested Citation

  • Colin Mason & Richard Harrison, 2003. "Closing the Regional Equity Gap? A Critique of the Department of Trade and Industry's Regional Venture Capital Funds Initiative," Regional Studies, Taylor & Francis Journals, vol. 37(8), pages 855-868.
    • Handle: RePEc:taf:regstd:v:37:y:2003:i:8:p:855-868
    DOI: 10.1080/0034340032000128767
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/0034340032000128767
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/0034340032000128767?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Pissarides, Francesca, 1999. "Is lack of funds the main obstacle to growth? ebrd's experience with small- and medium-sized businesses in central and eastern europe," Journal of Business Venturing, Elsevier, vol. 14(5-6), pages 519-539.
    2. Goran Lindstrom & Christer Olofsson, 2001. "Early stage financing of NTBFs: An analysis of contributions from support actors," Venture Capital, Taylor & Francis Journals, vol. 3(2), pages 151-168, April.
    3. Gordon Murray, 1998. "A Policy Response to Regional Disparities in the Supply of Risk Capital to New Technology-based Firms in the European Union: The European Seed Capital Fund Scheme," Regional Studies, Taylor & Francis Journals, vol. 32(5), pages 405-419.
    4. Colin Mason & Richard Harrison, 2001. "'Investment Readiness': A Critique of Government Proposals to Increase the Demand for Venture Capital," Regional Studies, Taylor & Francis Journals, vol. 35(7), pages 663-668.
    5. Magnus Klofsten, 1999. "Supporting the pre-commercialization stages of technology-based firms: The effects of small-scale venture capital," Venture Capital, Taylor & Francis Journals, vol. 1(1), pages 83-93, January.
    6. Wright, Mike & Thompson, Steve & Robbie, Ken, 1992. "Venture capital and management-led, leveraged buy-outs: A European perspective," Journal of Business Venturing, Elsevier, vol. 7(1), pages 47-71, January.
    7. John May, 2002. "Structured angel groups in the USA: The Dinner Club experience," Venture Capital, Taylor & Francis Journals, vol. 4(4), pages 337-342, October.
    8. Gupta, Anil K. & Sapienza, Harry J., 1992. "Determinants of venture capital firms' preferences regarding the industry diversity and geographic scope of their investments," Journal of Business Venturing, Elsevier, vol. 7(5), pages 347-362, September.
    9. Bruce Cerullo & Bruce Sommer, 2002. "Helping healthcare entrepreneurs: A case study of Angel Healthcare Investors, LLC," Venture Capital, Taylor & Francis Journals, vol. 4(4), pages 325-330, October.
    10. Binks, Martin R & Ennew, Christine T, 1996. "Growing Firms and the Credit Constraint," Small Business Economics, Springer, vol. 8(1), pages 17-25, February.
    11. Rebecca Harding, 2000. "Venture capital and regional development: Towards a venture capital 'system'," Venture Capital, Taylor & Francis Journals, vol. 2(4), pages 287-311, October.
    12. Thompson, Steve & Wright, Mike, 1995. "Corporate Governance: The Role of Restructuring Transactions," Economic Journal, Royal Economic Society, vol. 105(430), pages 690-703, May.
    13. William H. Payne & Matthew J. Macarty, 2002. "The anatomy of an angel investing network: Tech Coast Angels," Venture Capital, Taylor & Francis Journals, vol. 4(4), pages 331-336, October.
    14. Evan J. Douglas & Dean Shepherd, 2002. "Exploring investor readiness: Assessments by entrepreneurs and investors in Australia," Venture Capital, Taylor & Francis Journals, vol. 4(3), pages 219-236, July.
    15. Cressy, Robert & Olofsson, Christer, 1997. "The Financial Conditions for Swedish SMEs: Survey and Research Agenda," Small Business Economics, Springer, vol. 9(2), pages 179-194, April.
    16. Gordon Murray, 1999. "Early-stage venture capital funds, scale economies and public support," Venture Capital, Taylor & Francis Journals, vol. 1(4), pages 351-384, October.
    17. Jeffrey Sohl, 2003. "The private equity market in the USA: Lessons from volatility," Venture Capital, Taylor & Francis Journals, vol. 5(1), pages 29-46, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Colin M. Mason & Richard T. Harrison, 2004. "Improving Access to Early Stage Venture Capital in Regional Economies: A New Approach to Investment Readiness," Local Economy, London South Bank University, vol. 19(2), pages 159-173, May.
    2. Iman Seoudi, 2015. "Public Policy For Venture Capital: An Integrated Framework," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 9(4), pages 31-51.
    3. Judit Karsai, 2004. "Can the state replace private capital investors? Public financing of venture capital in Hungary," CERS-IE WORKING PAPERS 0409, Institute of Economics, Centre for Economic and Regional Studies.
    4. Thanh Huynh, 2016. "Early-stage fundraising of university spin-offs: a study through demand-site perspectives," Venture Capital, Taylor & Francis Journals, vol. 18(4), pages 345-367, October.
    5. David Citron & Ken Robbie & Mike Wright, 1997. "Loan Covenants and Relationship Banking in MBOs," Accounting and Business Research, Taylor & Francis Journals, vol. 27(4), pages 277-294.
    6. Dimo Dimov & Gordon Murray, 2008. "Determinants of the Incidence and Scale of Seed Capital Investments by Venture Capital Firms," Small Business Economics, Springer, vol. 30(2), pages 127-152, February.
    7. Dale, B.G. & Richardson, R. & Wright, D.M., 2001. "Triple inaugural address for the Rotating Chair for Research in Organisation and Management," ERIM Inaugural Address Series Research in Management EIA-2001-001-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam..
    8. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    9. Fabio Bertoni & María Ferrer & José Martí, 2013. "The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms," Small Business Economics, Springer, vol. 40(3), pages 607-633, April.
    10. Ciaran Driver & Grahame Thompson, 2002. "Corporate Governance and Democracy: The Stakeholder Debate Revisited," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 6(2), pages 111-130, May.
    11. John R. Becker–Blease & Jeffrey E. Sohl, 2011. "The Effect of Gender Diversity on Angel Group Investment," Entrepreneurship Theory and Practice, , vol. 35(4), pages 709-733, July.
    12. Charlie Weir & Peter Jones & Mike Wright, 2015. "Public to private transactions, private equity and financial health in the UK: an empirical analysis of the impact of going private," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(1), pages 91-112, February.
    13. Dafna Schwartz & Raphael Bar-El, 2006. "Venture Investments in Israel - A Regional Perspective Dafna Schwartz and Raphael Bar-El Ben-Gurion University, School of Management, Israel," ERSA conference papers ersa06p868, European Regional Science Association.
    14. Phillippe Desbrières & Alain Schatt, 2002. "The Impacts of LBOs on the Performance of Acquired Firms: The French Case," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5‐6), pages 695-729.
    15. Bonini, Stefano & Capizzi, Vincenzo & Valletta, Mario & Zocchi, Paola, 2018. "Angel network affiliation and business angels' investment practices," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 592-608.
    16. Colin Mason & Jennifer Kwok, 2010. "Investment Readiness Programmes and Access to Finance: A Critical Review of Design Issues," Local Economy, London South Bank University, vol. 25(4), pages 269-292, June.
    17. Michael Fritsch & Dirk Schilder, 2008. "Does Venture Capital Investment Really Require Spatial Proximity? An Empirical Investigation," Environment and Planning A, , vol. 40(9), pages 2114-2131, September.
    18. Anoosheh Rostamkalaei & Mark Freel, 2016. "The cost of growth: small firms and the pricing of bank loans," Small Business Economics, Springer, vol. 46(2), pages 255-272, February.
    19. Lockett, Andy & Wright, Mike, 2001. "The syndication of venture capital investments," Omega, Elsevier, vol. 29(5), pages 375-390, October.
    20. Mirjam Knockaert & Mike Wright & Bart Clarysse & Andy Lockett, 2010. "Agency and similarity effects and the VC’s attitude towards academic spin-out investing," The Journal of Technology Transfer, Springer, vol. 35(6), pages 567-584, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:regstd:v:37:y:2003:i:8:p:855-868. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/CRES20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.