Investment body calls for £1bn investment fund

The government should invest £500m in a £1bn "fund of funds" to support innovative new companies, according to the National Endowment for Science, Technology and the Arts (NESTA).

The investment body argues that emergency support is needed to ensure the survival of some of the UK's most promising technology firms.

Public funding should be used as leverage for private sector funding, NESTA suggested in its Budget submission.

This would provide a "catalyst" for the expansion of equity funding to those new firms with the greatest potential, it said.

The fund should be "strongly future-focused", with an expectation that it will be sufficiently resourced to maintain funding over the next 20 years or more.

NESTA estimated that there are only 13 funds left with over £5m each to invest in the early stages of new firms.

This compares to around 39 that have been actively engaged over the last five years.

Funds with less than £5m are likely to focus their limited resources on existing portfolio companies, it added.

NESTA said that the proposed fund should focus on companies seeking up to £500,000, with a target level for first investment of between £250,000 and £500,000.

The Budget submission also called for an increase from 20 per cent to 30 per cent in the enterprise investment scheme tax relief in order to encourage so-called 'angel investments'.

And this should be coupled with a national awareness campaign aimed at recruiting wealthy and experienced people to become effective investors, said the organisation.