Promoting Equity Flows into Smaller Businesses

The UK Enterprise Investment Scheme and Venture Capital Trusts
  • Marc Cowling
  • Gordon Murray
  • Pete Bates
Part of the International Studies in Entrepreneurship book series (ISEN, volume 22)


The availability of risk capital for high-potential, young companies has been a key policy issue for government in the context of promoting economic development via the growth of innovative (new knowledge-based) small- and medium-sized enterprises (SMEs)(Aho et al. 2006). Issues regarding the importance of risk capital to the early-growth stages of young companies have been debated widely in political and academic circles both in the UK and continental Europe (HM Treasury 1998, 2003; European Commission 2003, 2005, 2006a,b; Cressy and Olofsson 1997; Cressy 2002) since the 1980s. The US experience has provided an example and reference to watch. The conspicuous successes of new US companies that grow rapidly into positions of international dominance within the arena of new technologies and knowledge-based opportunities are widely admired.


Labor Productivity Venture Capital Profit Margin Fixed Asset Risk Capital 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Aho, E., Cornu, J., Georghiou, L., and Subirá, A. (2006) Creating an Innovative Europe. Report of the Independent Expert Group on R&D and Innovation appointed following the Hampton Court Summit. Brussels: European CommissionGoogle Scholar
  2. Arellano, M. and Bond, S. (1991) “Some tests of specification for panel dataPanel Data: Monte Carlo evidence and an application to employment equations.” Review of Economic Studies, Vol. 58(2), pp. 277–297CrossRefGoogle Scholar
  3. Armour, J. and Cumming, D. (2006) “The legislative road to silicon valley.” Oxford Economic Papers-New Series, Vol. 58, pp. 596–635CrossRefGoogle Scholar
  4. Bank of England (1996) The Financing of Technology Based Small FirmsFirms. London: Bank of EnglandGoogle Scholar
  5. Bergemann, D. and Hege, U. (1998) “Venture capital financing, moral hazard and learning.” Journal of Banking and Finance, Vol. 22, pp. 703–735CrossRefGoogle Scholar
  6. Berger, A. N. and Udell, G. F. (1998) “The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle.” Journal of Banking and Finance, Vol. 22, pp. 613–673CrossRefGoogle Scholar
  7. Bolton J. E. (1971) Report of the Committee of Enquiry on Small Firms. Cmnd. 4811, HMSO: LondonGoogle Scholar
  8. Bottazzi, L., Da Rin, M., and Hellmann, T. (2005) “What Role of Legal Systems in Financial Intermediation? Theory and Evidence.” RICAFE Working Paper No. 022 Google Scholar
  9. Boyns, N., Cox, M., Spires, R., and Hughes, A. (2003) Research into the Enterprise Investment Scheme and Venture Capital Trusts. A Report Prepared for Inland Revenue. Cambridge UK: PACEC Public and Corporate Economic ConsultantsGoogle Scholar
  10. Bruderl, J., Preisendorfer, P., and Ziegler, R. (1992) “Survival chances of newly founded business organizations.” American Sociological Review, Vol. 57, pp. 227–242CrossRefGoogle Scholar
  11. Bürgel, O., Fier, A., Licht, G., and Murray, G. C. (2004). The internationalization of young high-tech firms. ZEW Economic Studies 22. Mannheim: Physica-VerlagCrossRefGoogle Scholar
  12. Burgelmann, D. and Hege, U. (1998) “Venture capital financing, moral hazard, and learning.” Journal of Banking and Finance,Vol. 22(6), pp. 703–735CrossRefGoogle Scholar
  13. Cassar, G. (2004) “The Financing of Business Start-Ups.” Journal of Business Venturing, Vol. 19(2), pp. 261–283CrossRefGoogle Scholar
  14. Chay, K. and Powell, J. (2001) “Semiparametric censored regression models.” Journal of Economic Perspectives, Vol. IS(4), pp. 29–42CrossRefGoogle Scholar
  15. Cowling, M. and Mitchell, P. (2003) “Is the small firms loan guarantee scheme hazardous for banks?” Small Business Economics, Vol. 21, pp. 63–71CrossRefGoogle Scholar
  16. Cowling, M. (2003) “Productivity and corporate governance in smaller firms.” Small Business Economics, Vol. 20, pp. 335–344CrossRefGoogle Scholar
  17. Cressy, R. and Olofsson, C. (1997) “European SME financing: An overview.” Small Business Economics, Vol. 9, pp. 87–96CrossRefGoogle Scholar
  18. Cressy, R. (2002) “Funding gaps: A symposium.” Economic Journal, Vol. 112(477), pp.F1–F16CrossRefGoogle Scholar
  19. Cressy, R. and Olofsson, C. (2006) “Why do most firms die young?” Small Business Economics, Vol. 26, pp. 103–116CrossRefGoogle Scholar
  20. Cumming, D., Fleming, G., and Schwienbacher, A. (2006). “Legality and venture capital exits.” Journal of Corporate Finance, Vol. 12, pp. 214–245CrossRefGoogle Scholar
  21. Davidson, R. and MacKinnon, J. G. (1993) Estimation and Inference in Econometrics. New York: Oxford University Press, pp. 320, 323Google Scholar
  22. Denis, D. J. (2004) “Entrepreneurial finance: An overview of the issues and evidence.” Journal of Corporate Finance, Vol. 10, pp. 301–326CrossRefGoogle Scholar
  23. European Commission (2003) Benchmarking Business Angels. Best Report No 1, Enterprise Directorate-General, Brussels: European CommissionGoogle Scholar
  24. European Commission Commission (2005) Best Practices of Public Support for Early-Stage Equity Finance. Directorate General for Enterprise and Industry. Belgium: European CommissionGoogle Scholar
  25. European Commission (2006a) Community Guidelines on State Aid to Promote Risk Capital Investments in Small and Medium-Sized Enterprises. Directorate General for Enterprise and Industry. Brussels: European CommissionGoogle Scholar
  26. European Commission (2006b) Financing SME Growth – Adding European Value. COM(2006) 349 Final. Directorate General for Enterprise and Industry. Brussels: European CommissionGoogle Scholar
  27. European Commission (2006c) Report of the Alternative Investment Expert Group: Developing European Private Equity. Directorate General for Internal Market and Services. Brussels: European CommissionGoogle Scholar
  28. Freear, J, Sohl, J, and Wetzel, W (1994) “Angels and non-angels – are there differences?” Journal of Business Venturing, Vol. 9(2), pp 109–123CrossRefGoogle Scholar
  29. Gilson, R. J. (2003) “Engineering a venture capital market: Lessons from the American experience.” Stanford Law Review, Vol. 55, pp. 1067–1103Google Scholar
  30. Gimeno, J., Folta, T., Cooper, A., and Woo, C. (1997) “Survival of the fittest: Entrepreneurial human capital and the persistence of underperforming firms.” Administrative Science Quarterly, Vol. 42, pp. 750–783CrossRefGoogle Scholar
  31. Gompers, P., Lerner, J. (1999) The Venture CapitalVenture Capital Cycle. Cambridge, MA: MIT PressGoogle Scholar
  32. Greene, W. H. (2002) LIMDEP Version 8.0. Econometric Modeling Guide, Vol. 1. Plainview, NY: Econometric Software, Inc.Google Scholar
  33. Greene, W. H. (2003) Econometric Analysis. 5th ed. Upper Saddle River: Prentice HallHallGoogle Scholar
  34. Greene, W. H. (2003) LIMDEP Version 8 Econometric Modeling Guide, Vol. 1. Plainview, NY: Econometric SoftwareGoogle Scholar
  35. Gujarati, D. (2003) Basic Econometrics. 4th ed. New York: McGraw HillGoogle Scholar
  36. Harding, R., Cowling, M., and Murray, G. C. (2003) Assessing the Scale of the Equity Gap in the UK Economy: Report to HM Treasury and Small Business Service Business Service, London: HM Treasury and DTIGoogle Scholar
  37. Hausman, J. A. (1978) “Specification tests in econometrics.” Econometrica, Vol. 46, pp. 1251–1271CrossRefGoogle Scholar
  38. HM TreasuryHM Treasury (1998) Financing the High Technology Business: A report to the Paymaster General, London: HMSOGoogle Scholar
  39. HM Treasury & Small Business Service. (2003) Bridging the Finance Gap: Next Steps in Improving Access to Growth Capital for Small Businesses. London: HM Treasury & Small Business ServiceGoogle Scholar
  40. Lerner, J. (1999) The government as venture capitalVenture Capitalist: The long-run impact of the SBIR program. Journal of Business, Vol. 72(3), pp. 285–318CrossRefGoogle Scholar
  41. Lerner, J. (2002) When bureaucrats meet entrepreneurs: The design of effective “public venture capital”Venture Capital programs. Economic Journal, Vol. 112, pp. F73–F84CrossRefGoogle Scholar
  42. Macmillan H. (1931) Report of the Committee on FinanceFinance and Industry. Cmnd. 3897, London: HMSOGoogle Scholar
  43. Mason, C. M. and Harrison, R. T. (2001) “Investment readiness”: A critique of government proposals to increase the demand for venture capitalVenture Capital. Regional Studies, Vol. 34, pp. 663–668CrossRefGoogle Scholar
  44. Mason, C. M. and Harrison, R. T. (2004) “Improving access to early stage venture capitalVenture Capital in regional economies: A new approach to investmentInvestment readiness.” Local Economy, Vol. 19, pp. 159–173CrossRefGoogle Scholar
  45. Mason, C. M. and Stark, M. (2004) “What do investors look for in a business plan?” International Small Business Journal, Vol. 22(3), pp. 227–248CrossRefGoogle Scholar
  46. Maula, M., Murray, G. C., and Jääskeläinen, M. (2007) Public Financing of Young Innovative Companies in Finland : Report to the Finnish Ministry of Trade and Industry, Helsinki: MTI PublicationsGoogle Scholar
  47. Murray, G. C. and Marriott, R. (1998) “Why has the investment performance of technology-specialist, European venture capital funds been so poor?” Research Policy, Vol. 27, pp. 947–976CrossRefGoogle Scholar
  48. Murray, G. C. (1998) “A policy response to regional disparities in the supply of risk capital to new technology-based firms in the European Union: the European seed capital fund scheme.” Regional Studies, Vol. 32, pp. 405–409CrossRefGoogle Scholar
  49. Murray, G. C. and Lott, J. (1995) “Have venture capitalVenture Capital firms a bias against investment in high technology companies?” Research Policy, Vol. 24, pp. 283–299CrossRefGoogle Scholar
  50. Murray, G. C. (1994) “The second equityEquity gap: Exit problems for seed & early stage venture Capitalists and their investee companiesCompanies.” International Small Business Journal, Vol. 12, pp. 59–76CrossRefGoogle Scholar
  51. Myers, S. C. and Majluf, N. (1984) “Corporate financing decisions when firms have investment information that investors do not.” Journal of Financial Economics, Vol. 13(2), pp. 187–221CrossRefGoogle Scholar
  52. Norton, E. and Tenenbaum, B. (1993) “Specialization versus diversification as a venture capital investment strategy.” Journal of Business Venturing, Vol. 8, pp. 431–442CrossRefGoogle Scholar
  53. OECD (2004) Venture Capital : Trends and Policy Recommendations. Science Technology Industry, Paris: Organisation for Economic Co-operation and DevelopmentGoogle Scholar
  54. OECD (2006) OECD Keynote Paper for SME Financing Gap: Theory & Evidence. Paris: Organisation for Economic Co-operation and DevelopmentGoogle Scholar
  55. Oxera (2007 forthcoming) Tax-advantaged employee share schemes: analysis of productivity effects. Report 1: Productivity measured using turnover. Research Report, London: HMRCGoogle Scholar
  56. Penrose, E. (1959) The Theory of the Growth of the Firm. Oxford: OUPGoogle Scholar
  57. Prowse, S. (1998) “Angel investors and the market for angel investments.” Journal of Banking and Finance, Vol. 22, pp.785–792CrossRefGoogle Scholar
  58. Riding, A. L., Dal Cin, P., Duxbury, L., Haines, G. and Safrata, R. (1993) Informal Investors in Canada: The Identification of Salient Characteristics. Ottawa: Carleton UniversityGoogle Scholar
  59. Roberts, R. (2007) The Business Lifespan of Firms in England & Wales: An analysis using account and customer data: SME market Analysis. UK Banking, London: Barclays Bank plcGoogle Scholar
  60. Sapienza, H. (1992) “When do venture capitalVenture Capitalists add value?” Journal of Business Venturing, Vol. 7, pp. 9–27CrossRefGoogle Scholar
  61. SAS Institute (1999) SAS User’s Guide, Version 8. Vol. 2. Cary, NC: SAS InstituteGoogle Scholar
  62. Sayrs, L. (1989) Pooled Time Series Analysis. Newbury Park, CA: SageGoogle Scholar
  63. Small Business Service (2004) Action Plan for Small Business, London: DTI & SBSGoogle Scholar
  64. Small Business Service (2006) Factors Determining the Performance of Early Stage High-Tech nology Venture Capital Funds, URN 06/902Google Scholar
  65. Sohl, J. E. (2003) “The private equity market in the USA: Lessons from volatility. Venture capital.” An International Journal of Entrepreneurial Finance, Vol. 5, pp. 29–46CrossRefGoogle Scholar
  66. Sohl, J. E. (2007) “The organization of the informal venture capital market,” in H. Landström (Ed.), Handbook of Research on Venture Capital. London: Edward Elgar Publishing LtdGoogle Scholar
  67. Stata (2003) Cross-Sectional Time Series, College Station, Texas: Stata PressGoogle Scholar
  68. Stiglitz, J. E. and Weiss, A. (1981) “Credit rationing in markets with imperfect information.” American Economic Review, Vol. 71(3), pp. 393–410Google Scholar
  69. Storey, D. J. (1998) The Ten Percenters. Fourth Report: Fast Growing SMEs in Great Britain, London: Deloitte & Touche TohmatsuGoogle Scholar
  70. Twisk, W. (2003) Applied Longitudinal Data Analysis for Epidemiology. New York: Cambridge University PressGoogle Scholar
  71. UK Presidency of the EU and the European Commission (2005) Conference Report on the Risk Capital Summit 2005: Investing for Growth and Competitiveness in Europe. London: DTI and HM TreasuryGoogle Scholar
  72. United States Department of Commerce and European Commission (2005) Working Group on Venture Capital . Final report, United States Department of Commerce, International Trade Administration and European Commission, Directorate-General for Enterprise and Industry. Brussels: European CommissionGoogle Scholar
  73. Van Osnabrugge, M. (1998) The Financing of Entrepreneurial Firms in the UK: A Comparison of Business Angel and Venture Capital ist Investment. Venture Capital Report, OxfordGoogle Scholar
  74. Westhead, P. and Cowling, M. (1995) “Employment change in independent owner managed high technologyTechnology firmsFirms in Great Britain.” Small Business Economics, Vol. 7(2), pp. 111–140CrossRefGoogle Scholar
  75. Wilson, S. and Butler, D. (2004) A Lot More to Do: The Promise and Peril of Panel Data in Political Science. Provo, Utah: Brigham Young UniversityGoogle Scholar
  76. Woolridge, J. (2002) Econometric Analysis of Cross-Section and Panel Data. Cambridge, MA: MIT PressGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Principal Economist, Institute for Employment StudiesUniversity of SussexBrightonUK
  2. 2.School of Business and EconomicsUniversity of Exeter, The Queen’s DriveBrightonUK
  3. 3.Institute for Employment StudiesMantell Building, University of Sussex CampusExeterUK

Personalised recommendations