Venture capital drought will stymie innovation, warns expert
Small companies with niche products and high potential in their market are attractive targets for investment, and the professionalism that private equity buy-outs bring can speed growth and entry into the mainstream.
But regional venture capital funds to help start ups in the UK without access to private finance has been drying up, partly as a result of the economic downturn.
“Regional funds are government sponsored, and largely dependent on government whim,” Bob Henry of Matrix Private Equity Partners told FoodNavigator.com.
North West, North East and Yorkshire & Humberside are preparing to launch a new round of funds with £385m in European grants and loans, according to The Daily Telegraph.
But others are strapped for cash. Henry said that Finance Cornwall as been essentially out of money for the last two years, for example. A recent analysis by the National Endowment for Science, Technology and the Arts and the British Venture Capital Association questioned whether more UK-funded regional funds should be created.
This, together with banks’ unwillingness to stump up loans, could have a serious effect on innovation in the food industry and its absorption into the mainstream, said Henry.
“Where are tomorrow’s innovators going to get the money to kick off?” he asked.
By bringing in a professional focus and identifying the products that work best for a company, private equity aims to speed growth in the space of three to four years. Turnover of a moribund business in need of a business refocus can increase four-fold in the time it is in a private equity firm’s hands.
“Innovation needs private equity at all levels,”Henry said.
Who needs a leg-up?
He told FoodNavigator.com that food enterprises started by families or chefs are especially interesting to private equity. They can get toa reasonable level when making a good product, but they do not have the professionalism to move on.
The switch over to private equity ownership often coincides with a reaching a certain number of employees.
Many entrepreneurs like to have control over everything, but when there are more than 30 employees they can’t have fingers in all the pies, said Henry. “That is a good time to go.”
