George Whitehead, Venture Partner Manager for the ventures team at Octopus Investments responds to NESTA’s suggestion that the the UK venture capital market is falling behind its US counterpart…
Whilst the average returns for venture capital funds can look weak on both sides of the pond, the reality is that the most sophisticated investors don’t look to put money in to ‘average’ funds. Instead they fight to get in to the top quartile performing funds, which account for 80% of the value of the market, and consistently demonstrate very high returns. In both the US and UK there is a long tail of poor performing funds which masks the fact that the right fund and the right fund manager can deliver stellar returns.
What we are seeing now, especially in the UK, is a new generation of venture capital funds creating top quartile returns. Good past performance not only attracts the best new deals, but also makes raising further funding considerably easier. This success allows the best funds to have the capability to follow a business right though from seed investment to exit taking them into million pound investments.
The UK market is maturing at a consistent rate and I predict that overtime the UK will not only close the gap, but actually overtake the US market delivering higher average returns. The government has created a number of entrepreneur friendly policies that appeal to both entrepreneurs and investors alike, such as the Entrepreneur Visa and tax reliefs for investors supporting smaller companies through investments like Venture Capital Trusts and Enterprise Investment Schemes. These government backed initiatives have helped create a unique entrepreneurial scene in this country. With over 50 incubators and accelerators based in London alone the evidence of a thriving entrepreneurial ecosystem is clear to see and many of the benefits of this rapidly evolving environment are yet to come to the surface and positively impact venture capital returns
London has become a great centre for innovation and entrepreneurship and is attracting talent from across Europe and beyond. Great businesses are all about the people who work for them and there are key hotspots across the UK (for example in London and Cambridge) where the talent is absolutely world class. Simultaneously seed funding is thriving, supported by Government initiatives such as Seed Enterprise Investment Schemes and the growth of accelerator programmes. This is increasing the quantity and, crucially, the quality of deal flow. The result is that UK based Series A VC investors are exceptionally well placed to reap significant rewards.”
