The Treasury’s consultation on a mooted national investment fund to help British businesses access scale-up finance will close on 22 September.
The consultation is soliciting views on the government’s Patient Capital Review. The review was launched in November last year to investigate how the UK funds and provides investment capital for smaller companies, commonly referred to as ‘patient capital’ because of its long-term nature.
A national investment fund has emerged as the review’s centrepiece policy proposal. It would be tasked with two main objectives: filling the funding void caused by the potential severing of the UK’s relationship with the European Investment Fund post-Brexit and, more importantly, allow more high growth companies make the leap from start-up to scale-up (and beyond).
The report noted a few worrying statistics. At present, fewer than one in 10 British companies that receive seed funding go on to obtain fourth round investment (compared to nearly a quarter in the US). The report’s findings suggest UK businesses find the transition between SEIS and EIS and scale-up finance particularly difficult.
Ultimately, the trouble seems to stem from an imbalance between the UK’s world-leading position in seed funding and its relatively shallow depth of scale-up finance options. When it comes to seed funding, British businesses reap the benefits of the SEIS and EIS tax shields.
A national investment fund, according to Treasury report, would address the next steps.
As Shachar Bialick, founder of the FinTech startup Curve, explains, high growth companies often have to delay revenue generation at the expense of focusing on growth. “But doing so requires accepting the risks associated with that approach,” he says, “and providing a lot of growth fuel - in other words, funding.
“Unfortunately the region - both the UK and Europe in general - is still behind the likes of the US in that sense. So, until we address those weaknesses, it will struggle to compete globally.” The scale-up finance space, Bialick says, suffers from both a lack of professional VCs specialising in scale-ups and governmental support via loans or subsidies.
The Treasury consultation will address how any potential fund would be set up. The new fund could be either a public-private partnership (with the government furnishing VCs with money specifically intended for scale-up finance) or be placed fully on the government’s balance sheet to be sold off once it has established a sufficient track record.
The financing growth in innovative firms consultation by HM Treasury closes 22 September.
About Francois Badenhorst
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