Thank you for your letter of 15 December asking whether we would like to submit a supplementary memorandum to the committee by the end of January.

  We responded to your initial invitation to produce evidence to your committee because we are firmly committed to investing in and supporting the growth of promising technology-based businesses. Since giving evidence, our support has continued to grow and we have expanded our own programme of research into ways of creating more such companies and supporting them more effectively. I would like to highlight some of that ongoing work here:

  1.  Capital Gains Tax.  The debate about encouraging innovation and new business creation now recognises the complex nature of the issues and the difficulty of creating rapid cultural change that is durable. In our view the capital gains tax rate is the only simple lever available for catalysing change that has been identified and proven elsewhere. The evidence shows that where countries have reduced CGT to materially lower levels than in the UK, there has been a major beneficial impact in new business creation. Furthermore it is increasingly evident that the best entrepreneurs are geographically mobile and that the UK needs to measure its CGT rates against international yardsticks.

  We attach a Budget submission for 1999-2000 that summarises our views1.

  2.  Corporate Venturing.  Since our submission to the Committee, we have seen increasing activity by large corporates in "venturing" and investing in interesting technology businesses. We now have close relationships with several such international businesses and one has already made a number of investments alongside us. Workable models of corporate venturing have been rare, both internationally and in the United Kingdom.

  We could be witnessing, however, the beginning of a sea-change in corporate attitudes, driven largely by the increasing difficulty faced by in-house research groups in keeping abreast of technology developments globally. In consequence, we are sponsoring research into the area by the Judge Institute in Cambridge and expect their initial output this summer. If the Committee is still sitting then, we would be pleased to provide relevant information.

  3.  "University Challenge"  We continue to be actively involved in seed funding and keen to ensure the success of projects such as "University Challenge". We have expressed our views on this subject to the Committee and elsewhere before but, in brief, we remain concerned that such funds should be concentrated, with sufficient critical mass, on excellence. One key issue, for example, is that any fund be of sufficient size to attract a seasoned individual as its manager/investor. Another is that the resources go to those situations that have the real potential to be large businesses. In this way, public money is more likely to stimulate successful projects which attract private sector management and investment. The sincerity of our views is reflected in our substantial recent investments in seed funds such as the Medical Research Council Fund and Cambridge's Quantum Fund.

  4.  The European New Issues Markets.  One of the key ingredients in encouraging the venture capital industry to support young technology companies is the ready availability of later-stage support from stock markets. Since 1995 a number of new stock markets have been created in Europe, which is encouraging. On the other hand a number of more recent developments are reducing the markets willingness to support promising companies. In view of this complex picture we have sponsored research at Insead, where we have ongoing sponsorship of the "3i Venturelab", into the European New Issues Market. A copy of the preliminary review is attached[1].

  I would like to thank the Committee for the opportunity to contribute to this important Inquiry. 3i is happy to provide any further assistance at any time.

September 1998