10/08/2017

While cutting edge start-ups flourish in the UK, the evidence suggests that lack of suitable long-term finance (patient capital) is preventing them from realising their potential to join the elite group of world-leading firms valued in excess of $1bn and known as ‘unicorns’.

As part of the government’s ‘Patient Capital Review’ *, HM Treasury is seeking views on the policy options of a proposed National Investment Fund to help bridge this ‘patent finance’ gap. The proposed NIF would also help ensure UK firms relying on the European Investment Fund would still have access to finance post-Brexit.

‘Financing growth in innovative firms’ links to the consultation, which cites evidence showing that the UK has world class universities within a world-leading research community, one of the best environments in the world for nurturing start-ups and currently boasts 24% of Europe’s fastest-growing growing companies.

However, it creates just 4% of the world’s unicorns, which is more than Europe but way behind the USA (54%) and China (23%). Top US firms are also younger than UK firms, further suggesting it is better than the UK at growing new businesses into major companies.

26 wide-ranging questions posed by the consultation range include

  • what scale of new investment should the government seek to unlock and over what timeframe?
  • should resources be focused on one intervention (e.g. a single fund of significant scale) or spread over a number of different programmes?
  • when considering how to replace EIF investment if the EIF were no longer an investor in the UK, to what extent should the government seek to replicate the EIF’s current activities in (a) venture capital and (b) private equity?
  • will focusing resources on increasing investment provide better value for money than changes to the tax environment?
  • what steps should government take to support the next generation of high potential fund managers to develop their knowledge and skills and to raise their first or next fund?
  • what further steps, if any, should government take to increase investment into university spin-outs specifically?

* Its terms of reference set out that the review will

  • consider the availability of long-term finance for growing innovative firms looking to scale up
  • identify the long-term root causes affecting the availability of long-term finance for growing innovative firms, including any barriers that investors may face in providing long-term finance
  • review international best practices to inform recommendations for the UK market
  • consider the role of market practice and market norms in facilitating investment in long-term finance
  • assess what changes in government policy, if any, are needed to support the expansion of long-term capital for growing innovative firms