VC-backed businesses face funding shortfall

A new survey, conducted by Populus on behalf of the BVCA, has found that the majority of UK-based venture capitalists expect deal activity to decline in 2009, with more than half of those surveyed anticipating a significant slide compared with 2008.

73% of the 80 respondents suggested that the number of venture capital investments would fall year-on-year in 2009, while 51% believed that the declines would be in excess of 16%. Indeed, 84% of those surveyed said that they had already found it difficult to raise series-B and C funding rounds for their portfolio companies in the last six months, while a further 4% claimed it had been impossible.

Raising cash in the next year, though, will be imperative to the survival of many VC-backed businesses, with more than half of the respondents stating that their average portfolio company in product development phase could survive only for the next 7-12 months without a further injection of capital. This was even the most common answer for businesses that are already trading, with 45%.

Rounding off the negative mood, 59% of surveyed fund managers stated that there would be no recovery in the IPO market until at least mid-2010, while only 1% said this would happen in the next 12 months. In addition, 67% said it had become more difficult to raise a new fund.

However, according to BVCA chief executive Simon Walker the current climate is providing a "golden opportunity" for entrepreneurial businesses, which institutional investors are unable or unwilling to support in the current climate, and is calling on the Government to "act as a catalyst" to help encourage greater institutional investment for small enterprises.

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• UK / Ireland