Golden futures they cannot see

High technology innovation can yield huge rewards yet, a study reveals, few companies are seizing the opportunities on offer

British investment in new high-technology businesses is hamstrung by a lack of information and ignorance of the benefits of equity investment in future innovation, according to a report on corporate venturing which has just been published. The study "Window on Technology" by Withers, a City firm of solicitors, also concludes that - though corporate venturing is being carried out successfully in the UK - too few companies are involved. Moreover, a technology deficit is being created by the lack of funding for inventors and innovative entrepreneurs without proven track records. Lucius Cary, founder of the business angel matching service Venture Capital Report, is seeking to help to plug that gap with the launch of a technology venture capital trust aimed at the Oxford area. But since there is generally little investment activity, large companies have a chance to make themselves more fleet-footed by augmenting their research and development efforts in this way, as well as to enhance profits.

The report, which was published last week, follows an introduction to corporate venturing, "Gateway to Growth", which the firm produced in November 1995.

In that study, the firm described corporate venturing as the establishment of mutually beneficial relationships between larger companies and smaller innovative ones. Though primarily associated with large corporations becoming involved in cutting-edge technology by backing small firms with often modest investments, it can also include internal venturing, where investments emanate from within a company. In the current report, corporate venturing is defined as money invested by organisations in others as risk capital. The report finds that, while the objectives of corporate venturers vary across industry sectors, such investments are mainly motivated by a desire to achieve long-term growth.

Potential market size, growth prospects and entrepreneurial skills are the most important factors taken into consideration when planning an investment, with success dependent on an understanding of the innovation in which the venturer is investing, focused management of the investment and sufficient financial commitment.

Rates of return achieved with such investments in the UK are typically between 20 and 30 per cent, and that experience is usually enough to make first-timers repeat the practice.

David Gebbie, the Withers partner who wrote the report, based on statistical data collected by City University Business School, hopes the document will encourage large UK corporations to reconsider investing in Britain's innovation.

Pointing out that such organisations as the Bank of England and the Department of Trade and Industry see the practice as a key tool for maintaining a competitive edge, he added: "Our research concludes that, as the UK venture capital market matures, corporate investment must become the emerging enterprise's best hope of turning today's technology into tomorrow's products and services"


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