£1bn to Scale Up Venture Capital in the UK

The Shard, under construction.

Source: Wikimedia Commons

A billion-pound injection into UK Venture Capital firms to ensure more high-growth businesses flourish and remain under British ownership. That was the headline from this week's Autumn Statement.  We look at the policy background and wherther it will succeed.

To understand where the billion pounds comes from, we need to read the details.The government is going to supply an extra £400 million through the British Business Bank. This is supposed to stimulate private sector investment which will add-up to a billion. The exchequer is participating in the growth economy as a big player, but it's working in partnership with private venture capital firms. GDI reports the story in positive terms.

Buy and Hold

The Chancellor called the initiative “a first step to tackle the long-standing problem of our fastest growing technology firms being snapped up by bigger companies, rather than growing to scale”.

“This will be done by injecting an additional £400m into venture capital funds through the British Business Bank, unlocking £1bn of new finance for growing firms.”

As an example of why this matters, several outlets have focused on the story of Skyscanner, an Edinburgh-based flight search engine, which was bought by China's biggest online travel firm. Details of the Skyscanner story on alphr.com and on BBC News.

We note that some investors would regard the sale as a positive exit - the deal values Skyscanner at £1.4billion, which is about a 25 per cent premium from the company's last raise in January . But the government wants more businesses to remain in UK ownership while they grow to maturity.

To borrow a metaphor from Premier League football, the government does not want us tobe a 'selling club'. It wants us to hold onto our best players. That way, we grow our economy our communities, and our venture capital capability, creating a positive feedback loop that sets up the UK economy for sustainable growth.

The Brexit Factor

So the Chancellor's announcement is good news for buy-and-hold investors, VC firms, and anyone interested in long-term growth. But  then we have to facor in the Brexit dimension.  

According to Business Zone, the money in the Autumn Statement may be there to offset the loss of funds from the European Investment Bank (EIB).

"The European Investment bank (EIB) runs the European Investment fund (EIF). The UK’s businesses have benefitted generously from the EIF thanks to the country’s membership of the EIB; membership that will soon end.

"The EIF has, up until now, supported 144 private equity funds, 34 partner finance providers and 27,700 SMEs. In 2015, EIF's equity participations in the UK amounted to £559m, which the EIB estimates mobilised over £2bn in capital."

More details, including a comment from the department of Business and Industrial Strategy (BIS) that any attempts to link the announcement to Brexit were 'a red herring' in the Business Zone story.  

If you are interested in the government policy and the research behind it, we recommend you read 'Scale-up UK:- Growing Businesses, Growing our Economy' a report prepared by the business schools of Oxford and Cambridge Universities earlier this year.