UK leads the new media way

The popularity of sites like Feacebook is attracting venture capitalist interest

The UK’s next-generation content sector has secured £331m-worth of venture capital (VC) funding since the start of last year ­ a third of the European total and more than double that of its nearest rival, France.

Across Europe and Israel, new media investment is expanding rapidly. VCs have so far put up £499m this year, already more than the £487m total in 2006, says research from Library House.

And the growth is predicted to continue.

“We expect the trend to maintain momentum for 2008 at least,” said Library House head of analysis Darren Harper.

There are major economic implications if the UK can hold onto its lead, said Laurence Harrison, director at trade group Intellect.

“Because of disruption in business models caused by convergence, there has been a shift of funds away from traditional channels into Web 2.0,” said Harrison.

“If the UK is seen as a creative hub for investment in new media it will bring in investment and fuel the growth of small and medium-sized enterprises.”

But predictions of continued growth are not without caveats.

There has been a frenzy of high-price deals across the world. Google bought YouTube for $1.65bn (£811m) in 2006. And Microsoft’s payment of $240m (£115m) for a 1.6 per cent stake in Facebook last month values the overall site at $15bn (£7.2bn).

Experts are warning of a bubble reminiscent of the dot com era.

“I hope we are not seeing a repeat of what happened in the late 1990s,” said Stewart Davies, board member at venture capitalist New Venture Partners.

“Success comes from a business model that generates money, not the get-in-quick model that produces a strange idea and aims to sell it within three years.”

UK dominance is also vulnerable to regulatory changes, such as the capital gains tax reforms proposed by the chancellor in last month’s pre-Budget report.

“There has been a big potential turn-off in the legislation mooted for next year,” said Davies.

“People in these businesses are taking huge risks, with their own money or with someone else’s, so they have to be rewarded over the right period of time,” he said.