Summary:
Jonathan Guthrie sees evidence that the level of innovation in the UK appears to be declining. Not much coming out of universities anymore. We're living through a fallow period for innovation, fundamental innovation is slowing up after a remarkable 40 year boom. Internet investment bubble, Schumpeterian explanation: copycats to pile in on the upswing of an innovation wave. Was a fiasco for VC investment in UK. Returns negative for average fund set up after 1996 over 5 to 10 year periods. Confidence has weakened further with the credit crunch, which has closed the market for flotations. Less money was invested in European technology start-ups last quarter than at any time since 2001. Venture capital is more fragile this side of the Atlantic than in the US. Technology investment in UK will probably recover. VCs need to market themselves, focus on the lofty top decile, not the mediocre median. Early stage technology investment is attractive as a way to lay small bets on risky, glamorous propositions. Also need a handful of breakthroughs that are immensely remunerative. Biotech lost cost. Renewable energy and power savings big hope. (Published: 30/07/08)
Notes:
- little backing from City for fledgling tech companies on UK's science parks
- Jon Moulton, a private equity investor who backs technology start-ups as a hobby
- “In the UK the level of innovation appears to be declining. Universities are being picked over very hard for ideas, but not a lot is coming out of them.”
- likens UK early stage technology investors to ufologists
- instead of joining hands and imploring Martians to land, they hope, equally fruitlessly, for a worthwhile return on investment
- living through a fallow period for innovation
- Walter Herriot of the St John’s Innovation Centre
- “There is a slowing up in fundamental invention, though not in the creation of niche applications.”
- reflecting on the advent in the past 40 years of personal computers, the internet and mobile phones, he says: “I cannot see an equivalent explosion in the near term.”
- similar to Schumpeter's view
- proposed that innovation progresses in waves
- profitable breakthroughs occurrs in the troughs of economic cycles
- encourages copycats to pile in on the upswing, feeding economic instability
- cfr internet investment bubble
- now looks more like a belated dash into a maturing technology rather than the new era it was billed as at the time
- fiasco has constrained any advertising claims for venture capital based on recent performance
- funds set up after 1996 have typically lost 1.4 per cent a year over five years and 1.8 per cent over 10 years
- according to the British Private Equity and Venture Capital Association
- Confidence has weakened further with the credit crunch, which has closed the market for flotations
- less money was invested in European technology start-ups last quarter – €950m (£747m) – than at any time since 2001
- Apax, progenitor of European venture capital, launched a fund last spring with no venture capital component
- Braveheart is concentrating on follow-on financings;
- 3i has pulled out of early stage investment altogether
- Venture capital is a more fragile flower on the eastern shores of the Atlantic than in the US
- Sir Ronald Cohen, founder of Apax,
- “The perception is that the early stage is tougher, you raise less money when you float, and there is less liquidity afterwards.”
- is technology investment is doomed to dwindle away to nothing in the UK?
- will probably recover
- dotbomb losses will drop out of short-term performance statistics during the next few years.
- returns need not then be spectacular – a long-term average is 4.5 per cent – to lure investors back
- trade bodies such as the BVCA, meanwhile, can do their bit by quoting returns exclusive of “exceptional losses” chalked up on internet plays
- marketing emphasis should be on the lofty top decile, not the mediocre median
- early stage technology investment is attractive as a way to lay small bets on risky, glamorous propositions
- absorbs just more than £1bn a year in the UK
- no backers stake money they cannot afford to lose
- in some respects it resembles alternative investments, such as art or wine, more than big buy-outs or quoted shares
- task that science park toilers face is to produce a handful of breakthroughs that are immensely remunerative
- little can be hoped for from biotech
- stricken by unprofitability as persistent as a hypochondriac’s bad back
- materials scientists have engineered a UK nanotechnology sector so tiny it is virtually invisible
- most to go for in renewable energy and power saving systems
- "scope for technological leaps equivalent to the shift from mainframes to PCs” (Sir Ronald Moulton)
