Venture capital investment in the UK fell by about a quarter last year, according to the National Endowment for Science, Technology and the Arts (NESTA), which receives public funding to invest in companies.
Last year was the worst for venture capital investment activity in recent history with the number of investments down by 17% on 2008, and a drop of 27% on the total amount invested (£677m compared to £930m), NESTA said.
The number of exits fell by 40% and fundraising dropped by more than 50% both in terms of the number of funds raising new capital and total amounts raised.
NESTA said the situation was worse than after the dot.com crash post millennium as the time taken to successfully exit a portfolio company, through a flotation or takeover, was getting longer and globally averaged 7.5 years.
NESTA also said current fundraising activity was "considerably lower than levels seen after the dotcom crash" and consequently the lowest level seen in the past decade.
Mike Lynch, chairman of NESTA’s Investment Fund and former founder of software company Autonomy, said: "High growth technology start-ups will be critical to the UK’s recovery. Our ambition to rebalance the economy must take into account the difficulties of early stage investment."
Matthew Mead, managing director of NESTA Investments, added: "There is positive news to emerge from our research. Funds made good returns on exits in the middle of the recession so with a peak of investment activity between 2004 and 2007 many funds will be able to harvest their portfolio. Hopefully, this will coincide with economic growth and renewed M&A activity."