British firms may struggle to scale because barriers suppress their returns, not because investors overlook bargains. UK venture funds lag the US in both median returns and outsized winners.
British and European companies are valued far below their US counterparts, and smaller European firms face higher costs of capital. This piece asks whether that reflects a shortage of funding or the weaker returns investors can expect when firms face fragmented markets and barriers to growth.
The returns evidence points away from a hidden pool of underpriced British companies: the median UK venture fund returned about 10.3% a year, against 11.8% in the US, while 8% of UK funds returned at least three times their investment, compared with 13% in the US and 14% in the rest of Europe. Directing more pension savings toward the same opportunities risks exposing savers to more risk without improving the prospects that make firms investable. This develops the argument in ISA & pension reform: Why forced investment is not real investment.