UK Government launches VC fund-of-funds

The UK Government has established a fund-of-funds for UK venture capital funds investing in technology-based businesses with high growth potential.

The Department for Business, Innovation and Skills, alongside the Department of Energy and Climate Change and the Department of Health, will invest £150m into the UK Innovation Investment Fund. The aim is to use private sector cash, invested on an equal basis, to push the size up to £1bn over the next 10 years. The government is now seeking a manager for the fund.

The £150m of government money is coming from the £750m in the Strategic Investment Fund announced in the April Budget.

Part of Prime Minister Gordon Brown’s new strategy, Building Britain’s Future, the new fund will invest in VC funds which focus on growing small businesses, start-ups and spin-outs, in digital and life sciences, clean technology and advanced manufacturing.

Simon Walker, chief executive of the British Private Equity and Venture Capital Association (BVCA), welcome the move: “I am delighted that ministers have accepted a model on which the BVCA has campaigned for more than two years and which has been supported recently by others including the CBI and NESTA. I am convinced that this scheme can make a real difference provided it is implemented with the urgency that it deserves. Venture capital should be in the vanguard of economic recovery in Britain and it now has the change to move from the relative fringe in economic thinking squarely to centre stage.”

This is the second such fund the UK Government has established. In 1998, the UK High Technology Fund was a £125m fund-of-funds which invested in a number of VCs such as Advent, Amadeus, MTI and Scottish Equity Partners.

A £20m cornerstone investment was supplied, which enabled the fund manager to raise an additional £105m from the European Investment Fund (EIF), UK pension funds and a French bank.

Ted Mott, chief executive of venture capital firm Oxford Capital, is also pleased with the new fund, but urges quick action: “The government is right to back future technologies. Many of Britain’s mainstream businesses are in their sunset years and need replacing with new, innovative sunrise industries. Fortunately Britain has some of the best brains in the world in its science parks and university departments, developing leading edge solutions in the sustainability, healthcare and communications sectors. The government’s new £150m innovation fund will come as a welcome boost to these businesses – but we need much more and the sooner this can be levered up to the £1bn private sector funding predicted by the government the better.”