Here's a stark reminder of why the UK government should stay out of the business of 'funding innovation':
(By Jim Pickard, Political Correspondent, Financial Times)
Published: March 9 2010 00:04
An investment by taxpayers of £74m into regional venture capital funds has been marked down to just £5m according to a report by the Whitehall auditor, which is highly critical of the government’s wider venture capital programme.
Since 2000, the Department for Business has invested £338m in 28 venture capital funds – through seven umbrella schemes – that have provided seed money to more than 800 companies.
The regional venture capital funds – one of the seven schemes – has reported an interim rate of return of -15.7 per cent, far worse than the -0.4 per cent delivered by other similar European funds.
Meanwhile, many of the funds have been paying high costs to private sector fund managers. The RVCF, for example, spent £46m in fees against £130m invested up to December 2008.
Source: Financial Times
Not only do these 'investments' artificially prolong the life of bad fund managers; they also distort the market for commercial VCs that are forced to compete with subsidised funds. The money would be so much better spent reducing red tape in the investment world and/or supporting academic research.