Investment by venture capital rises to pounds 3.2bn

A 54 per cent rise in funding for start-ups and other early-stage businesses helped British venture capital investment rise by nearly a third to a record pounds 3.2bn in 1996.

The figures published by the British Venture Capital Association (BVCA) yesterday show that a total of pounds 131m was put into young companies, the highest amount since 1990. The number of financings for a sector generally regarded as being starved of cash also rose, for the third year running, to 225.

Overall, investment in the UK increased by 31 per cent, to pounds 2.8bn, or 87 per cent of the total put up by full members of the BVCA, which represents virtually every significant source of venture capital in the country.

New opportunities accounted for 85 per cent of the total invested, with follow-on financings to companies that had previously received venture- capital backing accounting for the rest.

Funds for working capital, new plant, acquisitions and other forms of expansion continued to be the largest investment category, with 593 financings or 49 per cent of the total.

Investment in management buyouts and buy-ins also remained strong, rising 33 per cent to a record pounds 2.1bn and accounting for 74 per cent of the total invested. However, while the number of MBIs reached a record 127, the proportion of MBO and MBI financings was stable at 394 or 33 per cent of the total.

Engineering companies received the most venture capital in the 12-month period and support services - dominated by computer-related companies - the next biggest amount.

The South-east retained its position as the largest investment region, with a 49 per cent rise in funding taking it to a record pounds 1.2bn. But Scotland was the region that received the most venture capital per thousand VAT- registered businesses.

The largest source of funds is UK-based investors. However, those in the United States are becoming increasingly important and contributed a record pounds 822m, 3.5 times the 1995 figure.