Start-up companies starved of funding have been promised government support to unlock more than £20 billion of investment over ten years.
The chancellor announced a package for “innovative” businesses, including creating a new investment fund in the British Business Bank “seeded with £2.5 billion of public money” that would co-invest with the private sector to generate £7.5 billion of investment.
The measures come after a consultation and recommendations from a “patient capital” review panel of leading investors and entrepreneurs, led by Sir Damon Buffini, a former partner at Permira, the private equity firm. They are designed to help start-ups struggling to expand.
The plans also include the British Business Bank seed-investing £500 million in a so-called fund of funds in the private sector to help to unlock another £4 billion.
They were welcomed by investors, businesses and members of the panel, including the Private Equity & Venture Capital Association, Neil Woodford, the investor and a member of Sir Damon’s panel, and Syncona, a £1 billion life sciences investment company that was spun out of the Wellcome Trust.
However, experts said that there was uncertainty about the potential loss of venture capital from the European Investment Fund (EIF), a public-private partnership that accounts for about a third of investment in British-based venture capital funds. British venture capitalists are understood to have been assured that the European fund will continue to invest as usual until the country formally leaves the European Union, but there have been complaints that it has already begun to slow its activity in Britain.
Philip Hammond told MPs yesterday that “we stand ready to step in to replace European Investment Fund lending if needed”.
Nooman Haque, a managing director at Silicon Valley Bank in Britain, which lends to companies in their early stages, said that the chancellor had “hit the right notes”, but he questioned whether the money was in addition to support from the EIF and the European Investment Bank (EIB) or a replacement for it: “Our evidence suggests that the net gains once withdrawal of EIB funding is taken into account may be much less,” he said.
He added that “the attractiveness of money from, say, the British Business Bank to venture capital investors may depend partly on any restrictions placed on investing outside of the UK”.
The Liberal Democrats also raised concerns that the £2.5 billion of “public money” for the new fund appeared not “to have been allocated to the bank in the budget-costing documents themselves”.
Sir Vince Cable, the party’s leader, said that the “seemingly uncosted commitment . . . simply beggars belief.” He suggested that the government was offering “phantom money”.
A government source said: “The chancellor’s words speak for themselves.”
Irene Graham, chief executive of the Scale Up Institute, a not-for-profit organisation designed to help British companies, said that “much is in line with recommendations we have made and caters for a mix of finance options”.
Gervais Williams, a senior director at Miton Group, an investor in small companies and another member of Sir Damon’s panel, said that there was a “gap in the funding ladder” for companies looking to raise up to £25 million” and that the initiatives had been designed to put “extra spokes in the ladder” to help companies to “navigate those early stages” to expand.
Other measures to support long-term investment from the government include “giving pension funds confidence that they can invest in assets supporting innovative firms as part of a diverse portfolio”. The Pensions Regulator has been asked to “clarify guidance on investments with long-term investment horizons” in an attempt to tap the more than £2 trillion in UK pensions funds.
Extra cash gets the thumbs up
Increased investment in research and development was welcomed, but experts urged caution over the sums involved (Alex Ralph writes).
The government said that it was spending a further £2.3 billion on research and development in 2021-22 and was increasing the main R&D tax credit to 12 per cent from 11 per cent. EY, the accountancy firm, said that the tax credit would cost about £175 million per year and while Britain’s “rate is lower than other locations, the government argues that its simplicity and ease of access makes the UK’s system competitive”.
Mike Spicer, of the British Chambers of Commerce, said: “The UK has long under-invested in R&D compared with our competitors and closing this gap will be crucial if it is to thrive on the global stage after leaving the European Union.”
Mike Cherry, of the Federation of Small Businesses, said raising research investment was “clearly needed”, given the cuts to the economic growth forecasts.