Small, private companies in the UK could find the year ahead a challenging one according to Modwenna Rees-Mogg, managing director of Venture Index.
Following a year which saw investment in British enterprise reach a record high of £85m, the current economic turmoil hitting the buyouts market is threatening to spread to early-stage investment.
Rees-Mogg said: “Our fear is that this could be the last healthy wave of investment before the impact of the liquidity crisis in credit markets is felt. We are currently collecting the data for the first quarter of 2008 and this will tell us more. Investors are telling us that it is definitely a buyers market at the moment, which suggests many entrepreneurs may go away from a fundraising empty handed. From the middle of this year many of the government backed funds will be ending their investment periods and will not have capital available for fresh deals. Now that 3i and Merlin Biosciences have left the venture market, we are waiting to see who might come in, if anyone, to fill the void that will be created.”
Last year was a successful one according to Venture Index, which tracks investments under £1m. The £85m raised was a 35% increase on 2006’s total of £63m, and in the 12 months to the end of December, 450 deals were completed – 132 just in the last three months – a 13% improvement on the previous year.
Investment in smaller companies in the UK in Q4 2007 made up 35% of the total investment for the year, reaching £30.2m across 132 deals, showing that the credit crunch had little effect in this period. This was a substantial increase on 2006, when £19.4m was invested.