Investors are not only seeking gains on their capital but are also helping young companies to develop innovative technology which may enable them to become the industry leaders of tomorrow. Over recent years, investment in technology has gone through a period of substantial growth followed by a sudden withdrawal, due largely to the fact that expectations were far too high, especially during the dotcom years. The feeling of uncertainty gave reason to retreat. But investors may now be missing out on opportunities. Venture investing is key for economic growth and job creation and is proven to be highly profitable for investors, particularly if you look at the US. There are obvious signs that the UK is now at a stage where venture capital focused on science-based innovation has evolved towards greater productivity. We have witnessed a transformation from knowledge into commercially viable products and services. OD2 and KVS serve as good examples of two highly successful UK businesses which have achieved this. The IPO market has been lifted by recent reports that highlighted 2004 as a landmark year for European venture-backed IPOs, with 34 companies raising a total of e712m. Among these, IT companies were the biggest new issues. Investors need to understand the mechanics as well as the long-term potential of investing in early-stage technology companies. Investors need to be aware that technology is subject to specific investment cycles which, as we have seen over previous years, have triggered fluctuations in performance and valuations. This raises questions on when is the best time to invest. History has shown that there is a tendency to invest in venture capital, particularly technology venture capital, when the market is booming. When it is not booming, investors become risk averse and prefer to fall back on the relative security of lower-growth companies. The result is that the supply of early-stage venture capital fluctuates significantly. Smart investors should be investing when supply is low. An important factor for the equity investor to grasp is that patterns exist in time as well as price. There is a strong argument in today’s low-growth and relatively low-inflation environment that superior investment returns come from investing in areas which offer prospects of real growth. Innovation must be the key driver for growth and technology-based venture capital funds are an asset class which offer investors exposure to real growth opportunities. Over recent months, global stockmarkets have been reflecting increased confidence and have significantly improved in performance. A number of sur- veys have also recently reported that investments in technology businesses have risen, demonstrating that we are moving on from the technology downturn of the past few years. A recent survey by Noble & Co has shown that most financial intermediaries believe technology is an area which offers growth potential. The sector does demand that investors take a long-term view and recognise that successful technology companies typically take longer to develop. Further inflow of venture capital money should help stimulate activity in the technology sector. This financial confidence looks set to encourage M&A activity among smaller businesses, as we have seen recently with the acquisition of OD2 by Loudeye Corporation and KVS which was bought by Veritas. Against this backdrop, the overall climate for venture investing has improved and valuations are more realistic, making it an ideal time to invest in technology. Venture capital trusts, with their 40 per cent tax breaks, offer a very attractive vehicle for private investors to gain access to technology investments. Of course, risks still exist as many of these investments are made in companies which are at an earlier stage of development and they should therefore be seen as longer-term investments. Most commentators take the view the next economic phase in Europe will continue to be one of relatively low growth and low inflation. Investment in technology is an increasingly important component of our economy and the performance of venture funds which invest in science-based innovation should compare particularly well against other types of asset. Potentially, we are entering a golden age for technology-based venture capital. Venture capitalists and management teams were tempered in the boom and bust of 2001/02 and those that have survived have emerged stronger. Many exciting opportunities to invest in innovation exist and the climate for technology investment is now more measured. It is possible to build good businesses over the medium to long term and to deliver attractive equity returns. There could be significant benefits for those who recognise and support this.