Private equity 'underdelivers' for startups says Mandelson

Lord Mandelson, the secretary of state for business, innovation and skills, has chided the financial sector for failing to support startups.

Lord Mandelson said at the Innovate 09 conference organised by the TSB on Tuesday (13 October 2009) that the financial markets have “underdelivered” for startups.

“It is partly the steep capital costs, partly the long lead times and partly the high costs of due diligence. But it is striking that private equity has raised more and more money and invested less and less of it in small-firm growth and investment.

“We have seen a growing private equity sector which I support and welcome and encourage but it is not performing adequately for small, growth, innovative companies.

Lord Mandelson added: “We would expect a level of risk aversion in the early stages of the economic recovery but if that risk aversion stalls the growth of innovative British firms then that recovery itself is at risk.”

The minister pointed to the investment fund set up by the Department for Business, Innovation and Skills (BIS), which is meant to channel up to £1bn in public and private-sector money to technology companies over the next three years as an example of the government putting “money where our mouth is”.

Earlier that day, BIS announced plans to set up a science park in Stevenage aimed at companies working on new drugs. The Strategic Investment Fund set up after the 2009 Budget will provide £11.7m of the expected £37.6m cost. The TSB will provide £5m of the total and the East of England Development Agency will contribute up to £4m, the remainder being provided by GlaxoSmithKline and the Wellcome Trust.

“This is not big government or tiny government that can’t do anything. This is smart, intelligent government acting with others to do things that would otherwise not take place,” Mandelson claimed.

At the conference, the TSB launched six calls for R&D projects over the next six months worth a total of £39.5m aimed at medicines and healthcare, low-carbon buildings, infectious disease detection, more efficient agriculture and intelligent transport and logistics. The agriculture programme, worth £75m over five years, also brings in money from the Department for Environment, Food and Rural Affairs (DEFRA) and the Biotechnology and Biological Sciences Research Council (BBSRC). The TSB expects to contribute £50m of the total.

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