Chapter 3: Venture Capital: A Geographical Perspective
Colin Mason Introduction A major focus of applied research on venture capital concerns the ‘equity gap’ – in other words, the lack of availability of small amounts of ﬁnance. In the case of formal (or institutional) venture capital funds, because of the ﬁxed nature of most of the costs that investors incur in making investments it is uneconomic for them to make small investments. Informal venture capital investors – or business angels – are able to make small investments because they do not have the overheads of fund managers and do not cost their time in the same way. However, most business angels, even when investing in syndicates alongside other business angels, lack suﬃciently ‘deep pockets’ to fully substitute for the lack of venture capital fund investment. Hence, whereas the market for investments of under £250 000/$500 000 is served fairly eﬀectively by business angels, and the over £5m/$10m market is satisﬁed by venture capital funds, there is a gap in the provision of amounts in the £250 000/$500 000 to £5m/$10m range which are too large for business angels but too small for professional investors. This gap is mostly experienced by new and recently started growing businesses. Governments have responded in a variety of ways in an attempt to increase the supply of small scale, early stage venture capital (see Murray in Chapter 4 and Sohl in Chapter 14). However, much less attention has been given to ‘regional gaps’ in the supply of venture capital...
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