The UK has no VC industry

What this indicates is the sheer inability of the UK’s financial system to provide the support that smaller businesses need. The companies that have suffered these losses do not need loans: they need new capital to replace that which they will have lost. Some, to be candid, will not justify that capital injection. That will be because they have no business model left worth injecting funds into. If they were heavily dependent upon Carillion and there is no guarantee that those taking over that company’s contracts will continue to buy services from them that may well be the case.

But others will have the ability to survive if only they are not burdened with considerable new fixed obligations to service debt and any associated interest but could instead concentrate on returning their businesses to profitability and then pay returns when they have done so.

In other words, what these businesses need is an injection of new capital now. Let’s not get into the precise form that capital could take: that will vary from case to case, and anyway it’s hardly worth considering because there is no venture capital fund on hand to provide that funding.

No private capital at all in fact.

Bit of a surprise to me but there we are, the Senior Lecturer has pronounced.

11 thoughts on “The UK has no VC industry”

  1. That will be because they have no business model left worth injecting funds into

    Codswallop – how does a business model change in consequence to a customer defaulting?

  2. The FT reports that Octopus VCT alone raised £120m in the last four months of 2017 (which is more than enough to recapitalise all those companies in danger due to Carillion’s default). It adds that so far in the 2017/8 tax year VCTs have raised £431m.
    Murphy must have overlooked that somehow.

  3. Any firm that moves to snap up Carillion assets (and the contracts are indeed assets) will of course be decried as “vulture capitalists” and proof of the rottenness of the system. Heads he wins, tails we lose. And by “lose” I mean “get subjected to more ill-written brain-vomit”

  4. What all this hysteria shows is that the media and Snippa are totally unaware of how businesses operate. Just how many large companies are there that have not thought hard about what happens if a key supplier goes bust? If you look at the websites of major companies who used services from Carillion, the ones in which I am interested have already issued statements about what is happening to keep services going – it’s just that Murphy and co don’t know where to look. It’s the sub-contractors awaiting payment from Carillion that are suffering and even they will surely have the gumption to approach someone else in the supply chain to discuss the options.

    For the construction contracts, does Snippa seriously think that the hospitals and schools will not get completed? It is surely a simple matter to get another company to perform the role of Carillion. Maybe just go back to the tender phase and pick the second-cheapest option this time.

    For the support contracts, it is not hard to find someone to take over whatever role played by Carillion – hell, they might even shorten the supply chain by contracting directly with the grunts who actually do the work.

    What sort of planet do these media commentators live on?

  5. We have considerable VC business in the UK. I occasionally come across it as I am an agent for one of the groups, referring or investigating particular aspect.

    Just VC is not suitable for all businesses. What some of the suppliers are looking for is bailing out from bad decisions – their own.
    Unless the business is very healthy the banks would be idiots to do it, VC may do it but would not surprise me if they turned down 200 applications for every one they funded from the Carillion problem.

  6. “The companies that have suffered these losses do not need loans: they need new capital to replace that which they will have lost.”

    How does he think they get the money to purchase that capital?

    Does he seriously think that a government agency – with no money on the line in the case of defaulting – is going to be able to do better at judging which businesses have long-term potential and which don’t?

    How does he think we avoid the problems of people trying to acquire all the capital they can without worrying about how they’re going to produce value with it – for example, just selling it on and pocketing the difference?

    And most businesses don’t need an influx of VC. Especially the majority of small ones. An influx of money is good when those small ones are set to become large ones – trading a big gob of cash for equity to fund a major expansion.

    Bob’s new restaurant doesn’t need that. Bob’s new restaurant just needs 50k in startup funds – which he gets by saving some money and getting a loan for the rest. And, in the end, if Bob is successful, he gets to keep his *whole* company.

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