Supplementary memorandum submitted by
YFM group
I am writing as a follow-up to the Treasury
Committee Hearing on Tuesday 9 November 2004.
Having now read the transcript I am acutely
aware that one of the key themes in the YFM Group's Written Evidence,
the need for the Government to make an early commitment to cornerstone
funding for a second round of Regional Venture Capital Funds (RVCFs),
was not picked up by any of the MPs present at the Hearing. I
hope that this doesn't mean that the point will be forgotten when
the Treasury Committee's report is being drafted.
At the same time, whilst there was questioning
about the proposed Enterprise Capital Funds (ECFs) initiative
no one, in the heat of the moment, thought to ask why Small Business
Investment Companies (SBICs), the model for ECFs, have become
such an established feature of the risk capital marketplace in
the US. SBICs were launched in the 1950s before the US venture
capital industry had gained real momentum. They helped to set
the agenda for and have become an accepted part of supply side
arrangements in what is now a very sophisticated market.
We query the transferability of the SBIC model
to the UK given that we do not have a risk capital marketplace
here that is as uncharted or as poorly served as was its US counterpart
half a century ago. Investors in the UK who have had some experience
of the ups and downs of the economic cycle and who have been active
as fund backers or as backers of individual companies for a decade
or more are not, in our experience, enthusiastic about the Government's
ECF initiative. The advice we receive is that they would like
to see a more balanced approach where downside protection as well
as upside enhancement features as part of the equation. Products
currently being promoted to investors reflect this customer expectation.
As an example I enclose an article about the plans of a new player
in the private equity marketplace, Stargate Capital. (Not printed)
Our view is that the Government should be giving
more thought to downside protection in developing its ECF proposals.
The RVCF model, which addresses this concern, has been hugely
successful in winning investor backing. Why not build on this
experience?
23 November 2004
| 
