A study of venture capital in the United States over three decades estimates it now accounts for 20 per cent of total innovative effort and the impact of every venture dollar on patenting is five times that generated by industrial spending on research and development.

The study, by Samuel Kortum of Boston University and Josh Lerner of Harvard Business School, concentrates on patenting across 20 industries and 500 venture-backed and non-venture firms.

In their purest form, venture capital funds for start-up companies are set up by private firms looking to make medium to long-term investments in risky but potentially lucrative commercial projects.

Governments worldwide have been helping to support their formation, sometimes directly, in the belief that such funds spur technological innovation.

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Speaking at a London School of Economics conference, the researchers said venture-backed firms patent more, their patents are cited more in other patent applications and are more aggressively protected through litigation.

In the US, the annual flow of money into venture capital between 1946 and 1977 never amounted to more than a few hundred million dollars and was usually much less. Changes in financial regulations in the late 1970s led to rising investments in the area.

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In 1978, $428 million was invested in new funds but eight years later this had risen to $4 billion. The mixture of firms financed by venture capitalists differs significantly from those taken on by corporate research laboratories. Venture capitalists, says the study, are able to finance many early-stage projects with substantial uncertainly due to mechanisms refined over decades.

Venture capital funds are sprouting up around the world. In Britain the government has announced a Pounds 50 million venture capital fund to encourage entrepreneurial activity in universities. But the researchers warn that while this strategy appears to be working in the US "it is not evident that the US model can be seamlessly transferred abroad".

Different employment practices, regulatory policies or public market conditions might limit the formation of these funds. "Even if it were feasible to transfer this model, public economic development programmes can be subjected to political manipulation, for instance pressures to award funds to politically connected businesses."

The finding that venture capital is more effective in spurring innovation than industrial R&D in the US raises questions about whether corporate research is being properly directed, says the study.

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Nocapfour_xy Power of the keys: Tom Wickens, who is autistic, performed part of a Beethoven work and one of his own compositions at a conference at the University of Hertfordshire on educating children with autism this week. Mr Wickens attends Trinity College of Music, London. He said: "(Autism) does not really affect my work in music." But socially, he said, he lacks confidence - "I tend to be by myself quite a lot."