Just how bad is the investment landscape for tech and new media start-ups in 2009? VCs are warning that unless new sources are funding are created — perhaps via government intervention — the UK’s 1,100 VC-backed firms could soon face a real crisis. Doug Richards, Dragons’ Den personality and founder of mobile social network Trutap, says (via FT.com) that “hundreds of companies are never going to see the light of day. It is potentially a lost generation of companies.” Richard Anton, partner at Amadeus Capital — last seen backing P2P tech firm CacheLogic — says: “Starved of capital, companies will go to the wall or they will be forced to cut back too far, reducing jobs and losing competitiveness”.
Despite the onset of the credit crunch and collapse of credit markets, 2008 was actually a good year for investment, with 258 deals of more than £500,000 taking place, making it the best year for Irish and UK tech-company deals (as measured by the total amount of funding) since 2001, according to finance firm Ascendent. And some new funding is happening in the UK and Europe, but there clearly needs to be some major new investment from somewhere to maintain last year’s level of deal activity.
One solution, as we reported last year, comes from the National Endowment for Science Technology and the Arts (NESTA), which launched a campaign to create a £1 billion VC investment fund. Its paper, Attacking the Recession, calls for cash “to support early-stage innovative firms that are already suffering from the retreat of private venture capital from the sector”. Something that should be of great interest to Lord Carter’s Digital Britain project: NESTA is also calling for that money to go towards building next-gen internet connections to get the whole country online by 2012.
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