By Adrian Piper and Melanie Lund of the Bank’s Business Finance Division.
When the Government’s third competitiveness white paper—‘Competitiveness: Creating the Enterprise Centre of Europe’—was published in June 1996, it noted that the Bank of England, in co-operation with Government, would be investigating the extent to which small, technology-based firms face particular problems in raising finance, especially at the start-up and early development stages. The report, summarised in this article, is the outcome of that investigation.
The Bank’s report focuses on the financing of small technology-based firms at the seedcorn, start-up and early stages in the United Kingdom. The claim of underfunding is considered and the extent to which small, technology-based firms are at present adequately and appropriately financed is assessed. The Bank has endeavoured to examine all potential sources of finance, although we have paid particular attention to the role played by the British venture capital industry in the provision of equity capital. The way in which technology-based firms are financed in other industrialised countries has also been considered. The report makes tentative recommendations, with the intention of stimulating further debate. In producing the report, the Bank consulted widely in both the public and private sectors, seeking particularly the views of the providers and users of finance, relevant Government departments, and others with a particular knowledge of the subject.
The Bank also attached considerable importance to obtaining at first hand the views of a range of technology-based firms about their experiences of seeking finance in the earlier stages of their life cycle. Between May and July 1996, representatives from the Bank’s nine regional Agencies conducted a series of interviews with directors and senior managers at 59 technology-based firms at various stages of development. We were struck by both the complexity and the variety of financing experiences evidenced by these firms.