Euro investors branded hi-tech faint-hearts

Budding European technology firms could migrate to the United States unless they secure more support from capital markets, according to Carol Galley, vice-chairman of City firm Mercury Asset Management Group.

Speaking this week at a Royal Academy of Engineering seminar on research and development for industry, Ms Galley said that only 24 per cent of the investments made by the European venture capital industry were in technology-based sectors in 1995. By contrast the US had managed to channel more capital into technology-based firms, with 65 per cent of venture capital being directed to this sector in 1994. A developed capital market would enable firms to raise funds more easily at a lower cost and facilitate the formation of R&D spin-off companies.

The launching of a European version of NASDAQ, the US's massive high-technology stock exchange, could help to improve the situation. Ms Galley said the formation of EASDAQ, a pan-European stock exchange for high growth companies, was therefore "a positive step". "However, we should continue to move quickly or else stand by and watch European companies migrate to the US," she said.

The City has often been criticised for not understanding the technology behind the companies it analyses. But Ms Galley argued this was no longer the case: "One only needs to look at the number of scientists who are now part of the analytical community to see that things are changing." Of greater concern, she said, was the City's failure to understand the needs of small, technology-based firms: "Far too often such firms have been encouraged to list too early and then watched the share price wane under a dearth of newsflow. Or we have demanded detailed disclosures of research targets, which are at best educated guesses, and then punished those companies which miss targets." Failure to improve in this regard is likely to result in small firms avoiding the markets, restricting their ability to raise capital.