Declining venture capitalist (VC) investment in UK technology startups is threatening to undermine the country’s future competitiveness in the global economy, experts are warning.

According to figures from the British Venture Capital Association, investment in early-stage technology companies fell from £86m in 2004 to £84m last year.

Innovation experts say startup firms need stronger business skills to encourage investors to regard them as less high-risk, and prevent funding for new technology firms shrinking further.

If funding for innovative young technology businesses continues to drop it will undermine efforts to build the UK knowledge economy, says Mark White, board member of trade group British Business Angels Association.

‘Early-stage investment in technology is vital to creating more innovation in this country,’ he said. ‘If you take it away, any attempt to move in that direction will really struggle.’

‘There is a food chain between VCs investing and seeing returns, and then investing in new companies. If they do not make these early investments, there will be serious consequences for UK plc.’

Walter Herriot, managing director of Cambridge University’s small business incubator St John’s Innovation Centre, says there are plenty of good ideas, but without funding they will go nowhere.

‘New technology companies are not starting, or are going so slowly that international competitors overtake them, taking money from the UK economy,’ he said.

‘In the Cambridge area alone there were 20 early-age firms in the past year that should have received funding but didn’t because no one would back them.’

But Nigel Reynolds, leader of PricewaterhouseCoopers’ Vision to Reality entrepreneurship advice programme, says funding is there for startup companies with business acumen, and believes a structure should be put in place to ensure all new companies receive sound business advice.

‘There should be far more help for small new technology firms in writing up coherent, strong business plans,’ said Reynolds.

‘Instead of giving firms cash, they should be given free time with a business expert who could help them present their ideas properly. Often when people look for funding they have not done the necessary research. Bad first impressions with investors means they will not get money,’ he said.

What do you think? Email us at: feedback@computing.co.uk

Related stories

• IT R&D on the rise

  Startups need wise investment

• Secrets of the IT investors