Publicly sponsored regional venture capital: what can the UK learn from the US experience?

National venture capital activity in both the US and UK is concentrated in just a handful of regions. As a consequence, there are perceived to be local gaps in the availability of venture capital. Governments in both countries have sought to fill these gaps using taxpayer funds, although in recent years the policy emphasis has shifted in favour of measures to stimulate local activity by private sector venture capitalists. This paper addresses three questions. First, can locally targeted funds be an additional profitable investment opportunity for institutional investors including public sector pension funds? Second, to what extent is there a conflict for those sponsoring, or providing funding to, locally targeted funds between financial investment returns and economic development objectives? Third, what are the best mechanisms to balance the interests of the three parties-those with responsibility for regional development, investment managers within funding institutions and venture capitalists-while attempting to build a sustainable local venture capital industry? The paper concludes that given a clear-sighted approach to the goals of both parties, locally targeted private equity funds can indeed be an additional profitable investment opportunity for public sector funds. Good practice in sponsorship principles, as distilled from the American experience, should be largely applicable in Britain. However, the mechanisms will not easily translate from the US to the UK.