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VENTURENET: A NEW APPROACH TO THE PROMOTION OF INFORMAL VENTURE CAPITAL INVESTMENTS
1Department of Geography, University of Southampton, Southampton
SO17 1BJ, UK
2Ulster Business School, University of Ulster, Co. Antrim
BT37 0QB, UK
3Enterprise Support Group Ltd, The Enterprise Pavilion, London Square, Cross Lanes, Guildford GU1 1UG, UKTelephone
1 +44 1703 593729
2 +44 1232 366831
3 +44 483 504675
There has been a growing awareness of the economic significance of the informal venture capital market in the UK and a recognition of its untapped potential. The inefficient nature of the market makes it difficult for entrepreneurs seeking equity finance to make contact with private investors (or business angels) looking to invest in unquoted companies. One response to this situation is the creation of business angel networks (BANs) services which seek to 'match' entrepreneurs and businesses. In the UK there has been an enormous growth in the number of such networks, with 37 BANs now in existence which have generated a significant amount of investment activity. However, it can be argued that this growth in the number of BANs has had only a limited effect on enhancing the efficiency of the informal venture capital market. First, the number of BANs has fragmented and geographically segmented the market of such services, preventing any individual service from achieving critical mass. Second, there is criticism of the lack of quality control on the investment opportunities circulated to investors. Third, the matching mechanisms are criticized for being less effective than they might otherwise be.
This paper provides a case study of VentureNet - a computer-based national network enabling business angels seeking investments to find entrepreneurs seeking equity finance quickly and efficiently - which has been created in response to these criticisms. VentureNet has been established by Enterprise Support Group Ltd, a private sector company which provides business organisations and their suppliers of grants, subsidies and financial incentives with a quality assurance service covering the delivery of management services.
The company was established in 1988 and was the subject of a management buyout in 19' from 3i plc, the UK's leading venture capital company.
In terms of its design, VentureNet has two features that are unique to a BAN. First, unlike conventional computer-based BANs (e.g. MIT's Technology Capital Network) investors can make on-line searches of VentureNet's database of investment opportunities using their own search criteria. From January 1996 investment opportunities will also be listed on the Internet. Second, all opportunities on the database have passed VentureNet's information quality standard - a unique quality control scheme to ensure that investors have all the information they need to make informed investment decisions.
As originally established, VentureNet's intention was to add value to existing BANs by working with them wherever possible. It would provide existing BANs, as well as other intermediaries (e.g. accountancy firms) with access to the database, thereby providing their investors with a much wider range of investment opportunities, and enabling their investment opportunities to be examined by a much larger number of investors. However, VentureNet has met with resistance from existing BANs - particularly those in the public sector - which have perceived it to be a competitor. As a result, few of the investment opportunities of established BANs have been offered to VentureNet and investors registered with existing BANs have not been offered access to the VentureNet system.
Because of the attitude of existing players, combined with the opportunities now created by the Internet, VentureNet has decided that it will no longer rely upon intermediaries to make contact with investors and businesses and will, instead, seek clients directly. Nevertheless, it still intends to involve intermediary organisations in the follow-up stages of the matching process.
Currently 1300-1500 business angels have access to investment opportunities on the system and there are about 100 live investment opportunities. VentureNet's concern is that there are currently insufficient investment opportunities available to keep investors interested.
The paper raises a number of issues concerning intermediation in the informal venture capital market place: (i) the current approach in the UK to the promotion of informal venture capital which has resulted in a fragmented system of BANs; (ii) the feasibility of collaboration between the private sector and public sector (i.e. Training and Enterprise Councils and Business Links) and the role of government; (iii) the importance of quality standards; (iv) the role of technology in the delivery of business introduction services.