This report highlights the growing dependence by entrepreneurs in the UK on public sources of finance.

Key findings:

• There is a growing dependence by entrepreneurs in the UK on public sources of finance and reveals what is hidden behind the published data relating to the early stage venture capital market in the UK since 2000.

• The public sector increasingly invests with a private partner. Such co-investments are becoming more common than free-standing investments.

• The need for public funds to back companies at the very early stage is now more necessary than ever. The challenge for public funds is to be able to show that their approach and return on investment add value to the economy.

The UK early-stage venture capital market is currently experiencing major changes. With private funds - once the bedrock of start-up investment for entrepreneurs - moving away from the early stage, it is not just entrepreneurs but the economy as a whole that will be affected.

The shift comes at a time when there is real pressure for the UK to build great global companies to match those of the US, India and China as well as a harsher environment in which to start a new business. But as long as investors continue drifting away from the smaller deals that new firms depend upon, many businesses will struggle to get a foothold.

Authors:
Yannis Pierrakis and Colin Mason (Hunter Centre for Entrepreneurship, Strathclyde Business School, University of Strathclyde)