TWO of Britain’s best-known internet entrepreneurs are teaming up to launch a development fund to back start-up technology companies suffering from a financing gap as investment levels plummet.

European Founders Capital (EFC) is being put together by Michael Birch, who set up social networking website Bebo, and Brent Hoberman, best known for travel service lastminute.com.

The venture will also include Rogan Angelini-Hurll, an old friend of Hoberman’s who turned down the chance to co-found Lastminute, preferring to hang on to his job as a City analyst.

EFC is being set up with an initial £20m of seed funding, which will rise quickly to £50m. Birch, who is based in San Francisco, wants to increase the availability of early-stage funding in Europe, which lags the US.

“We aren’t taking institutional money,” he said. “All the money comes from founders – people who have done it before.”

According to new figures from British Venture Capital Association, member firms managed to raise just £230m last year, a £1 billion drop compared with 2006. The government is being urged to set up a new £1 billion fund to bridge the gap.

There is also less investment taking place in America. Research from Dow Jones Venture Source shows that venture capitalists sank just $3.9 billion (£2.6 billion) into US companies in the last quarter, the lowest investment level since 1998.

“We are going to see some great, disruptive companies coming out of this downturn,” said Hoberman.

EFC has identified a gap between business angels, who typically invest £50,000 to £100,000, and venture capitalists who put several million pounds into firms that have matured beyond their initial concept. Peter Dubens, who built up the Pipex broadband business, is another backer.

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