UK Plots Post-Brexit Tech Investment Fund

The British government is proposing a new venture capital fund in order to help nurture innovative firms based in this country.

Called the National Investment Fund, the government says it will help promising British startups compete on the world stage, in a post-Brexit world.

The proposed fund also aims to “close the £4 billion funding gap between American and British firms”, and help ensure the UK has thriving businesses in the years ahead.

Start-up Funding

The British Government consultation, called ‘Financing growth in innovative firms’, looks at ways to ensure start-ups have access to the finance they need.

Although the UK is currently considered to be one of the best European countries for access to venture capital seed funding, the UK actually lags far behind other countries such as the United States and China, as there is a smaller pool of venture capital available here to young local companies.

And there is concern that Brexit will have significant impact, as British businesses also rely on funding from the European Investment Fund.

Indeed, it is reported that almost 40 percent of all the funding for UK-based venture capital firms comes from the European Investment Fund.

But Brexit could see access to this fund potentially removed, hence the reason why the British government is considering its own start-up fund.

“Britain is an innovation powerhouse and it’s vital that we make sure our cutting-edge firms have the funding they need to meet their potential and conquer new markets,” explained Chancellor of the Exchequer, Phillip Hammond.

“Meeting this challenge will boost our productivity and enable us to create more well paid jobs across the UK,” he added.

The government said the new fund could be set up as a public-private partnership or be placed fully on the government’s balance sheet to be sold off once it has established a sufficient track record.

The consultation is part of the ‘Patient Capital Review’ announced by the Prime Minister last November, to strengthen the UK as a place where innovative firms can obtain the long-term ‘patient’ finance they need to scale up.

Global Stage

Unfortunately, it seems while UK firms do quite well for funding on a European basis, it is falling short when compared to other nations. For example, fewer than 1 in 10 firms that receive seed funding in the UK goes on to get fourth round investment. This is compared to nearly a quarter in the United States.

And the UK apparently accounts for just 4 percent of the world’s “unicorn” startups valued at more than $1 billion, compared with 54 percent in the US and 23 percent in China.

And it is true that top US firms are also much younger than UK firms, which again suggests the US is more effectively growing new businesses into large scale firms.

Indeed, the UK has preciously little large-scale tech firms left.

One of the most notable British tech success stories in recent times, ARM Holdings, was sold to Japanese giant Softbank for £24 billion, this time last year.

Another notable British software giant is the accountancy giant Sage, based in Newcastle. Last December it was reported that it was examining the sale of its North American payments business.

Meanwhile Hewlett-Packard bought Autonomy for $11.1 billion (£7.3bn) in 2011, but that takeover quickly soured after Autonomy’s former management team was accused of artificially inflating its value.

Quiz: What do you know about London’s technology scene?