By Jim Pickard, Political Correspondent Published: March 9 2010 00:04 | Last updated: 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 schemes were set up to fill the “equity gap” whereby small and start-up companies have been unable to access capital to sustain their growth. The Commons’ public accounts committee, in a report published on Tuesday, finds the funds were structured in a way that taxpayers bore a “disproportionate” share of the risks involved when compared with private sector co-investors. And while the department has provided “scant information” about the performance of the funds, using “restrictive” confidentiality clauses, it appears that many made annual losses. 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. The taxpayers’ investment of £74m in the RVCF is now worth only £5m – a drop of about 93 per cent. “We are concerned that the department . . . [does] not have a grip on the cumulative fund management fees incurred by these funds, and by paying fees regardless of performance, [has] been prepared to reward failure,” the committee says. The National Audit Office revealed in December that these venture capital funds had taken a loss on four out of five investments they had sold – 189 write-offs since 2000 against just 45 profitable exits. “Whether the investments represent value for money is entirely unclear,” says Edward Leigh, chairman of the Commons committee. The committee criticises the department for failing to establish basic economic and financial objectives when it was setting up the funds. It did not evaluate them for eight years, the report finds. Lessons from the report are likely to be useful as the department sets up two venture capital funds as part of its attempts to counter the recession – including an innovation investment fund. The department said it would reply to the committee’s report in due course.Venture capital fund turned £74m into £5m
Thursday, 11 March 2010
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