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Investor networks in the UK: national or regional?

Parris, S

February 2010

Abstract

A key ingredient of UK innovation policy has been to encourage local access to venture capital finance in order to support the development of small innovative entrepreneurial firms. However research, particularly in the US, has shown the venture capital industry to be organised at both a national and regional level, especially in terms of syndicate networks. Venture capitalists develop relationships with other investors to help to facilitate the transfer of information and knowledge about investment opportunities, as well as develop long term trust between investors which help reduce various investment costs. The formation of investment syndicates provides an important basis for the development of relationships between investors. In this paper we use a detailed dataset of UK investment tracking over 1900 entrepreneurial firms between 2000 and 2006 to analyse syndicate networks. In agreement with US literature, our analysis indicates a national level network structure, controlled by the major UK investors. In contrast to literature on regional clustering, our analysis indicates absent or weak network ties between locally constrained investors. However, this research emphases the opportunity for public policy to help stimulate the venture capital industry by focusing on the role of Government finance in co-ordinating networks at a national as opposed to regional level.

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