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The geography of venture capital investments in the UK

Mason, C.M. and Harrison, R. (2002) The geography of venture capital investments in the UK. Transactions of the Institute of British Geographers, 27 (4). pp. 427-451. ISSN 0020-2754

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Abstract

The role of venture capital in economic development increasingly is recognized as central to the development of an entrepreneurial economy. However, the supply of venture capital is not distributed evenly across the space economy. In the UK, evidence for the 1980s demonstrated that venture capital investments were highly concentrated in Greater London and the South East, reinforcing the existing patterns of regional concentration of economic activity. This paper reviews the regional distribution of venture capital investments in the UK in the 1990s, a period of massive growth in venture capital investment activity. It concludes that the regional concentration of venture capital investment has been considerably reduced since the 1980s. However, more detailed analysis of the data demonstrates that this shift towards a less unequal regional distribution has been driven by so-called 'merchant' venture capital - investments in large-scale management buy-outs and buy-ins which facilitate corporate restructuring through ownership change and often have adverse consequences for employment. 'Classic' venture capital - investments in young entrepreneurial companies with high growth potential - remains highly concentrated in London and the South East, and also in Scotland. This reflects both supply- and demand-side factors. The Government's new regional venture capital funds are unlikely to be effective in closing this regional finance gap. An alternative approach to intervention, in the context of the increasing globalization of venture capital investments, is to seek to attract venture capital money and expertise from elsewhere.