European venture capital (VC) investment in hi-tech companies is still on the up but the majority of UK money is earmarked for buyouts and capital, while cash for start-ups and seed investments remains hard to come by.
According to a survey from PricewaterhouseCoopers (PWC), called Money for Growth, VC funding in Europe rose by 75 per cent last year and total investments in Europe have reached Ecu4 billion, of which 44 per cent or Ecu1.8 billion was invested in the UK.
But Robert Conway, global and European leader of Financial Advisory Services (FAS), at the Global Technology Industry Group at PWC, said the UK was in danger of falling behind as investors take advantage of more favourable stock markets in Germany and France.
'The Alternative Investment Market (AIM) isn't working,' he claimed.
'The Nouveau Marche (NM) in France is beginning to attract cross-border activity and we must make sure the UK does not fall behind.'
Conway added that the NM had been 'incredibly successful' and was an increasingly appealing IPO exit route for investors, providing better valuations and liquidity.
David Cartwright, tax specialist and partner at PWC, said although the climate for investment in the UK and Europe was improving, overall seed money was still hard to find. 'There's still a cultural barrier among VCs here of "once a failure, always a failure", whereas in the US, they see failure as a learning experience,' he added.
PWC also noted that too much money - 59.8 per cent of the total - was allocated to buyouts, while only 6.2 per cent was earmarked for hi-tech early stage funding.
While start-up investments last year nearly doubled to 2,071, seed investments remained static at one per cent of the total funds invested. In the UK, 88 per cent of all money had been allocated for buy-ins and buy-outs.
PWC would like to see less cash spent on buyouts and more investments in start-ups. 'In the early 90s, technology investors were very naive, had their fingers burnt and withdrew to buyouts, which is where they are today. That is a concern,' said Conway.
But he added that the VC industry today was more clued up on the technology sector and many VC firms employed seasoned hi-tech executives able to gauge industry directions to help minimise investment risks.
The overall trend towards rising investment levels is set to continue, Conway said.
Cartwright predicted that the coming year will see a UK government programme in place which will marry corporate VCs, such as Intel and Microsoft - which both have investment funds - and traditional VCs, to bring together strategic technologies with the money.
The government is also discussing the possibility of introducing 'soft loans' for VC companies and is working on relaxing Capital Gains Tax regulations on VC funds in an effort to make investing in UK start-ups a more appealing prospect.
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