The UK government aims to leverage institutional investment including potentially in corporate vehicles.
The UK’s impromptu Budget late last week identified science and technology as key growth engines for the country, and pledged £500m ($650m) to support new venture capital funds investing in the sector. This potentially also includes support for corporate venture funds.
The government’s Long-term Investment for Technology & Science (Lifts) competition will provide up to £500m to support new venture capital funds “designed by institutional investors and world-class fund managers, aiming to crowd billions of pounds of private investment into UK science and technology businesses”.
After a short consultation led by the British Business Bank, the government will launch a call for proposals by the end of the year to identify promising fund structures and vehicles, with the intention that funds go live as soon as possible next year.
The moves coincide with a desire by the government to get more corporates to invest in the startup economy. Just before the Budget, the UK’s Department for Business, Energy and Industrial Strategy (Beis) hosted a roundtable for corporations, looking at how the government could help corporate venturers — both local and foreign — invest more in British startups.
One route would be for experienced CVC managers to be able to raise external capital from institutional investors, such as pension and life assurance funds.
Encouraging CVCs to work more with external capital would add to the pool of experienced VC managers with a strong track record in supporting deeptech startups, especially those coming out of the universities and close the government-estimated £30bn gap in funding for the UK entrepreneurs, insiders at the roundtable said.
The Council for Science and Technology, which advises Prime Minister Liz Truss on this, is due to give updated recommendations on this later in the autumn. The Lifts competition could be one way to take this forward.
A year ago the council made a series of recommendations to train more people in specialist investing, develop a specialist sovereign scale-up fund and convene institutional investors to scope and understand the opportunities, and provide incentives to aid this.
The new Budget, however, went further, by promising to remove some of the obstacles pension funds face when investing in VC funds. The government said it would bring forward draft regulations to “remove well-designed performance fees from the occupational defined contribution [DC] pension charge cap, ensuring that savers benefit from higher potential investment returns while providing clarity for institutional investors to help unlock investment into the UK’s most innovative businesses and productive assets”.
Stephen Welton, executive chairman of the British Growth Fund, representing a handful of UK banks investing in startups, told news provider Sifted: “Pension funds have the financial power to be transformative in supporting the real economy because they should think and plan longer term, but they are effectively prohibited from investing in higher risk and return strategies by the fee cap.
“Trustees should have the flexibility to better determine their investment strategy with an increased focus on net returns, not simply fees. This can unlock vast pools of institutional capital that would yield results for the invested companies, innovation in the UK and crucially for the pension holder themselves in terms of better long-term realised returns.”
One of BGF’s backers, Barclays, has been awarded £12m by the government to help growing tech businesses and replace Tech Nation, the UK startup support organisation, which lost the government contract.
