The UK government is a major player in the UK early and growth stage marketplace with multiple programmes to fund and support innovation and the knowledge economy.  Just to pick three; SESI/EIS tax relief assisted over 5 thousand companies to raise more than £2bn in 2015-16, the Enterprise Capital Funds programme has committed over £1bn of funding to the UK capital venture sector and the Angel CoFund is investing £100m directly into early stage companies alongside business angel networks.

This years Autumn budget was seen as a real test of the governments commitment to the sector, particularly as there is significant Brexit risk to the UK high tech sector.  The Autumn Budget speech outlined several steps to support the sector as part of an Action Plan to unlock over £20 billion of new investment in UK scale-up businesses:

  • establishing a new £2.5 billion Investment Fund incubated in the British Business Bank with the intention to float or sell once it has established a track record. By co-investing with the private sector, a total of £7.5 billion of investment will be unlocked
  • doubling the annual allowance for people investing in knowledge-intensive companies through the Enterprise Investment Scheme (EIS) and the annual investment those companies can receive through EIS and the Venture Capital Trust scheme, and introducing a new test to reduce the scope for and redirect low-risk investment, together unlocking over £7 billion of growth investment
  • investing in a series of private sector fund of funds of scale. The British Business Bank will seed the first wave of investment with up to £500 million, unlocking double its investment in private capital. Up to three waves will be launched, supporting a total of up to £4 billion investment
  • backing new and emerging fund managers through the British Business Bank’s established Enterprise Capital Fund programme, unlocking at least £1.5 billion of new investment
  • backing overseas investment in UK venture capital through the Department for International Trade, expected to unlock £1 billion of investment

The government will also support long-term investment by:

  • giving pension funds confidence that they can invest in assets supporting innovative firms as part of a diverse portfolio. The Pensions Regulator will clarify guidance on investments with long-term investment horizons. With over £2 trillion in UK pension funds, small changes in investment have the potential to transform the supply of capital to innovative firms
  • changing the qualifying rules in Entrepreneurs’ Relief to remove the disincentive to accept external investment and consulting on the detailed implementation of that change
  • launching a National Security Strategic Investment Fund to invest in advanced technologies to contribute to the national security mission. The British Business Bank will also support developing clusters of business angels outside London through a new commercial investment programme
  • a commitment to make up any funding shortfall caused by EIF pulling back from investing in UK venture capital.

The government Patient Capital Action Plan (summary & full report)  follows the government consultation document consultation document “Financing Growth in Innovative Firms” which was released in August and was largely focused on keeping pace with the US, where a quarter of start-ups make it to the fourth round of funding, compared to one in 10 in the UK.