Added Value from Venture Investors: the Case of Healthcare Biotechnology in Scotland and Cambridge (UK)

Introduction 1 1 Introduction This work is part of a wider European project whose core objective is to study: (i) the development of venture capital industry investing in early-stage high-tech enterprises and factors affecting its development in the participating countries (Finland, France, Israel, Italy and the UK); (ii) the co-evolution of the venture capital industry and high tech sectors; (iii) the non-monetary added value that the venture capital industry brings to high tech enterprises. Venture capital was invented as a mechanism aimed at encouraging the formation of new companies in high-technology fields, and consequent regional development and economic growth (Etzkowitz, 2005). Since the foundation of American Research and Development in 1946 at the Massachusetts Institute of Technology (MIT) and during the 60s and 70s, venture capital has played a crucial role in the creation of knowledge- and innovation-based industries in the US, firstly in ICT and subsequently also in biotech. Considered a pillar of innovation infrastructure, many other governments have stimulated the development of venture capital sectors in their countries/regions. Israel, for instance, is a recognised example of high-tech and venture capital co-evolution triggered by a policy program (Avnimelech and Teubal, 2006). In Europe, instead, there are still several concerns about the availability of venture capital for high-tech start-ups. In fact, although its importance is demonstrated by the Lisbon Agenda4, where venture capital was targeted as a mean to improve the environment of private research investments, R&D partnerships and high technology start-ups, in 2005 there was only $4.25 billion invested in Europe compared to the $22.16 billion invested in the US (E&Y, 2006). Following this geographical dimension, the UK has arguably the most developed venture capital industry in Europe, since it counted for almost 35% of capital invested by EVCA (European Venture Capital Association) members in 2004 (EVCA, 2005). Notably, the UK is also renowned for its high-tech industries, both ICT and biotech, and the golden triangle London-Cambridge-Oxford. This situation shows again the importance of venture capital: the more the availability of risk capital, the more the growth of high-tech industries5. Proximity brings advantages in terms of knowledge diffusion, personal and professional relationships, interpersonal trust and reputation, bundle of inter-related competences, regional collective learning, and so on (Powell et al., 2002; Mason and Harrison, 2002; Zook, 2004). In this sense, venture capital tends to locate where high-tech opportunities are more likely to come up, such as Cambridge, and the presence of venture capital stimulates the formation of high-tech start-ups. Once there is critical mass of opportunities and capital, investors and potential entrepreneurs may not need to go outside 4 http://www.europarl.europa.eu/summits/lis1_en.htm 5 It does not mean that venture capital precedes the formation of high-tech industries, but it plays an important role afterwards.