LAUNCH OF VENTURE INDEX REVEALS 22% DROP IN INVESTMENT IN UK SMALLER COMPANIES

April 05

Venture Index today launches the UK's first index designed to lift the lid on investments in small, unquoted UK companies. Venture Index is the first market indicator to accurately and transparently track "equity gap" investments of under £1 million across mainland UK. Updated each quarter, Venture Index will provide a 12 month rolling index of investment activity which gauges investor confidence in UK companies.

Announcing the launch of Venture Index, Modwenna Rees-Mogg, Managing Director of Venture Index, said: "Indices like the FTSE 100 and FTSE 250 exist for most areas of the market, and yet the venture capital space is seriously underserved. Market indices assist investors in developing successful investment strategies that produce and track real returns. Why shouldn't this also be the case for the venture market?

These shouldn't simply be written off as small-fry deals. These are the companies that represent high growth prospects for the UK's future economy. Imagine if you could have tracked the investments made in Body Shop or Lastminute.com in their early days before they floated."

Venture Index provides all sides of the market deal with information for comparative purposes; ultimately affording both investors and entrepreneurs a benchmark for private investments in UK companies. Updated on a quarterly basis, Venture Index will present a growing picture of investment activity in a significant part of the market often referred to as the "equity gap" including privately owned and government-supported venture capital funds and business angel networks.

Sub £1 million deal information has been collected by Venture Index since October 2003 to provide an accurate historical context for its launch. Over this period, the data gathered shows that both the total number of deals and total amounts invested in smaller, unquoted UK companies has trended downward from a peak of £51 million invested in 287 deals in the twelve months to October 2004 to £40.3 million invested in 264 companies in the year to end of February 2005. This represents a fall of 21% in total value and 8% in volume. The average investment amount for companies raising capital at this end of the market has fallen from just under £178,000 to just under £153,000. However, it is worth noting that although the average investment amount has seen a drop, median investment size in the last quarter rose to £125,000 as opposed to only £118,163 in the last twelve months.

Commenting on the deal data, Modwenna Rees-Mogg said: "What we have gathered gives an excellent insight into the market's view and its confidence in smaller company investing. Recent data suggests that finding deals worthy of investment is becoming more difficult and it remains difficult to persuade investors to part their money. This suggests a somewhat bleak outlook for equity gap businesses."

Venture Index can be dissected by median investment size and company location, sector and stage to reveal emerging trends in the UK venture market. For example, in both the last 12 months and the last quarter to February 2005, services businesses attracted the largest number of investments. This appears to reflect the general move in the UK economy away from traditional businesses such manufacturing towards the service sector. The favourite locations for investment by the founder members were London and Yorkshire respectively. Over the last year expansion stage investments were the most popular although in the last quarter start-ups overtook them. Modwenna Rees-Mogg added:

"Historically this has been an opaque part of the financial services industry, for investors, companies and commentators alike. In particular, there has been much comment surrounding the transparency of government-backed venture capital funds. In reality, many of these funds have already committed to open their books to Venture Index."

The index is powered by data from VCR Directory, the bible of the European private equity and venture capital industry and is sponsored by NESTA, the National Lottery funded National Endowment for Science, Technology and the Arts, and YFM Group which have also provided their investment data for the Venture Index. An extensive redesign of the VCR Directory's database has created a unique, secure and password-protected system which allows participating investors to update deal information online. Investors supply their own deal information which will be verified and aggregated by the VCR Directory search engine and analysed by the Venture Index team to create a 12 month rolling index of deals done in all regions of the UK. This information can be downloaded as a PDF report from www.ventureindex.co.uk for a small fee.

The other angel and VC groups already committed to provide information in this way include: Archangel Informal Investments, Catapult Venture Managers, Great Eastern Investment Forum, London Business Angels, London Seed Capital, MMC Ventures, NW Brown Ventures Ltd., Seed Capital Ltd - the Oxford Technology VCTs, Oxfordshire Investment Opportunity Network, SWAIN, Wales Fund Managers, WM Enterprise, Xénos and Yorkshire Association of Business Angels, YFM Private Equity and YFM Venture Finance.

FOR MORE INFORMATION GO TO: www.ventureindex.co.uk

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CONTACT: Claire Maloney, Capital MS&L on 0207 878 3181 or claire.maloney@capitalmsl.com

About VCR Directory™ The VCR Directory™ is a two volume annual hardback edition and online resource comprising details of 3,000 venture capital and private equity investors across Europe. These range from large private equity firms with multinational operations to small investors managing a handful of portfolio investments. It also includes corporate venturers and business angel networks. The online version, which is free to search, can be found at www.vcrdirectory.net

VCR Directory™ is owned by TMRM Ltd which also operates AngelNews™ at www.angelnews.co.uk, a free commercial news service for early stage funded companies and a monthly e-AngelNewsletter™.

About NESTA

NESTA (the National Endowment for Science, Technology and the Arts) is a non-departmental public body (NDPB) investing in innovators and working to improve the climate for creativity in the UK. Established in 1998 and set up with an endowment from the National Lottery (£200 million, raised in 2003 to £250 million), NESTA invests the interest to support UK innovation. Since May 2000, when the programmes first opened, NESTA has spent over £58m on programmes supporting 675 awards. Visit www.nesta.org.uk to find out more.

NESTA has a dedicated Media Room on its web site where news releases like this are easily available and where journalists can subscribe to receive any future releases. Other information, including high-resolution images to download and Communications contact details, are also available at www.nesta.org.uk/mediaroom

About YFM Group

YFM Group is the most active investor in the UKs small and medium sized enterprise (SME) marketplace. Through its closely integrated regional office network and wide range of funds under management, it benefits from outstanding deal flow and co-investment opportunities."

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