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British Business Bank sets up £2.5bn fund for ‘unicorn’ firms

UK government says the private sector will bring in another £5bn in investments

UK

A new UK government-backed investment vehicle to provide long-term capital for British businesses has been launched, with a fund backing dementia drug developers among the first to benefit.

British Patient Capital - which was pledged by Chancellor Philip Hammond last autumn and run by the British Business Bank - aims to support companies with high-growth potential and plug the deficit in venture capital funding compared to the US, which proportionally invests twice as much as the UK.

It’s being seeded with £400m in venture and growth funds and, according to the government, will bring in another £5bn of investment from the private sector.

Firmly in its sights is the creation and support of so-called ‘unicorn’ companies – start-ups with a valuation of $1bn or more – who often need additional financial help to scale up their businesses for the global stage. The BPC will invest in VC funds, which will in turn siphon the company to selected companies.

“The UK is home to some of the world’s most innovative companies and I want to make sure that they stay at the forefront of the tech revolution,” said Hammond.

“So, British Patient Capital will provide an extra £2.5bn for these cutting-edge businesses ensuring Britain remains one of the best places to start and grow a company.”

The Dementia Discovery Fund is one of two VCs given funding as the BPC gets underway, receiving £9m, while tech-focused VC Draper Espirit gets £30m.

The commitment by the private sector is a key element in the strategy, according to BBB. Once again drawing parallels with the US, it points out that in America 98% of VC fundraising comes from institutional sources, but in the UK that figure is much lower at around 55%. And UK companies typically get access to fewer funding rounds than their US counterparts – an average of 1.9 versus 2.7.

The initiative has been warmly received by the UK BioIndustry Association (BIA), which says it will provide long-term funding to support the growth of innovative UK companies and can “cornerstone the next generation of UK life science companies to scale to global leadership,”

A deficit of long-term funding for smaller, ambitious companies after the initial start-up rounds, once they start to build momentum, has been held up as a factor holding back UK firms in the bioscience, tech and other sectors.

“We’re delighted that our calls for ambitious public investment have been heeded,” said BIA chief executive Steve Bates. “Through leveraging a further £5bn private investment, the fund can now create a step-change in the availability of funding,” he added.

Article by
Phil Taylor

15th June 2018

From: Research, Sales

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