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Venture capital funds injected by government into young companies can provide benefit to them, allowing them to raise finance not available through conventional means and to grow. But so far the funds have not been managed as a programme and lack a robust framework of objectives to measure performance, according to a report published by the National Audit Office today. In the absence of baselines for measuring benefits, and with evidence of poor financial performance from some of the early funds, the programme cannot currently be said to demonstrate value for money.

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Since 2000, the Department for Business, Innovation and Skills and its predecessors have invested around £338 million in a series of venture capital funds to support young companies, which may find it difficult to obtain funding elsewhere. Nearly half of these businesses were not confident that they would have been able to go ahead anyway without finance from the Department’s funds. Of those that felt they would have gone ahead, most felt that in doing so their activities would have been more limited or delayed.

Today’s report points out that the Department failed to establish a robust framework, and associated baselines, against which to measure the impact of the funds: objectives were not clearly set out or prioritized. It was therefore not in a position to judge whether the taxpayers’ investment offered value for money. The Department, however, is now planning to take steps to strengthen its programme management and evaluation so that it is better able to demonstrate value for money.

Improvements have been made to the design of more recent funds to strike a better balance between protecting taxpayers’ interests and attracting other investors. The recent creation of Capital for Enterprise Limited, a company wholly-owned by the Department, has the potential to strengthen oversight of the funds.

The taxpayer is unlikely to receive financial returns on investment from the early funds. The £74 million invested in the Regional Venture Capital Funds, for example, is currently valued in the Department’s accounts at £5.9 million and the Department will get a financial return only if the individual funds outperform the preferential 10 per cent return to other investors. The economic benefits derived from the programme have yet to be measured.

"These venture capital funds help small, often innovative, businesses that otherwise may have struggled. And there is evidence that some businesses have benefited from this support. But, in the absence of clear objectives and baselines from the start, coupled with poor financial performance to date of early funds, the Department’s programme cannot currently be said to demonstrate value for money. Finally, there is no information publicly available about the funds. BIS should be more transparent, without compromising confidentiality."

Amyas Morse, head of the National Audit Office


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