Technology firms in the US are set to continue getting the vast majority of the world’s venture capital funding, a report has found.
The Silicon Valley Bank study, titled Innovation Economy Outlook 2014 and based on interviews with 1,200 executives working in high growth businesses worldwide, explains why US companies receive more than half the world's venture capital funding.
“Although UK venture investing has rebounded to the levels we saw before the financial downturn, global venture capital will continue to flow disproportionately to the United States because the United States is a much larger market, and US-focused funds have performed better overall,” the report reads.
“Historically, a smaller pool of venture capital for start-ups has been one of the challenges facing the UK innovation economy,” it continues. “This is not likely to change.”
US companies in the technology sector received approximately $35 billion (£20 billion) last year, nearly three times as much as the amount received by tech firms across the whole of Europe.
The report also highlighted that UK tech companies are more reliant on angel investors and government grants than their US counterparts.
Almost two-thirds of executives who work in the technology sector reported angel investors, the private individuals who invest in very early stage startups, as a source of funding in 2013, compared to just 41 percent of American executives. Less than half of UK respondents used venture capital as a source of funding.
A lack of venture capital funding has been cited as one of the main reasons why the UK isn't producing tech giants on the same scale as the US, which has spawned behemoths like Google, Facebook, Twitter and Amazon.
While US tech firms appear to be more reliant on venture capital funding, they’re not necessarily finding it easier to raise money, according to the investment bank..
"UK executives who successfully raised capital in 2013 are less likely than those in the United States to say the fundraising environment is extremely challenging," the report reads, "and more likely to say it is either somewhat challenging or not very challenging."
Looking forward, entrepreneurs plan to reduce reliance on angel funding and government grants while increasing use of other funding types. Fifteen percent of respondents expect to rely on organic growth rather than raising external capital.
Of the 1,200 executives involved in the study, 100 were based in the UK. Half of those worked at a company with fewer than 10 staff and more than 80 percent were in the software sector.
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