• Why the UK’s Industrial Strategy Could See a £7bn-plus Boost from Venture Capital

    July 09, 2018
    • Why the UK’s Industrial Strategy Could See a £7bn-plus Boost from Venture Capital

    The UK’s new Industrial Strategy could attract £7bn-plus of venture capital and growth capital for scale-up innovation investment over the next few years, according to research published by ICAEW in their new report Boosting Finance for the UK’s Industrial Strategy.

    The UK government – via the newly created UK Research & Innovation and its Innovate UK arm – has so far announced a total investment target of about £1.4bn for the 14 streams of Industrial Strategy Challenge Fund (ISCF) investment announced. Research that the ICAEW commissioned from Beauhurst found that more than £7bn of venture capital has been invested in the UK since 2011 that could be linked to the technologies and business sectors covered by the 14 ISCF categories.

    In the report, the ICAEW have grouped together for the first time the major elements of the Industrial Strategy that have been announced so far, including:

    • 4 ‘Grand Challenges’
    • 14 investment streams of the Industrial Strategy Challenge Fund
    • 7 ‘sector deals’

    The political and economic context for the Industrial Strategy of course includes concern amongst British-based innovative companies about the potential outcomes of Brexit negotiations – as well as amongst overseas companies that are big investors in the UK.

    ICAEW’s Corporate Finance Faculty asked Beauhurst to estimate total equity investments since 2011 for minority stakes in UK early-stage ventures and companies that could be broadly classified as related to each of the four ‘Grand Challenges’. This would indicate the potential level of commercial capital and growth finance that could be attracted to each challenge.

    The estimates excluded direct investment in companies by government departments and agencies, but included public-private funds in which the government is an investors, such as those supported by the British Business Bank.

    Summarised findings:

    • The 14 streams announced so far as part of the first two waves of the Industrial Strategy Challenge Fund total more than £1.4bn of new targets that combine government and potential private-sector investment.
    • Approximately £7.1bn of venture capital and growth capital was invested in 2011-2017 in UK companies that could be categorised as part of sectors covered by the 14 streams – demonstrating the importance of such start-up and scale-up finance in ‘multiplying’ the impact of government R&D and innovation investment.
    • University spin-outs are only one part of this story – but they accounted for £1.3bn of venture and growth equity investment in 2011-2017.
    • Taking one ‘Grand Challenge’ as an example – ‘AI and the Data Economy’ – the new investment targets for the Industrial Strategy Challenge Fund during the next three years include £20m for Next Generation Services, £20m for Quantum Technology, and £33m for Audience of the Future – totalling £73m.
    • ICAEW and Beauhurst estimate that total commercial equity investment in these three areas was nearly £3.0bn in 2011-2017 – and £928m in 613 deals in 2017 alone.
    • ICAEW is supporting the £33m Audience of the Future by backing the Immerse UK initiative (led by Innovate UK). £238m of venture and growth money was invested in 141 related deals in 2011-2017.
    • ICAEW has also widely publicised the £20m Next Generation Services stream because it will seed-fund the development of AI and advanced data services in the accountancy, legal and insurance professions. £295m of venture and growth money was invested in 255 related deals in 2011-2017.
    • The Corporate Finance Faculty’s own research has tracked ten new UK-based venture capital and growth funds announced so far in 2018 – ranging from the $375m Eight Roads Ventures European fund to the new £50m NCL Technology Ventures/Kent Life Science Fund.

    At the conference, ICAEW’s chief executive Michael Izza also announced a new ICAEW initiative on AI and Big Data in Transaction Services. This was very timely, because the opening guest speaker was Lord Clement-Jones CBE, Chair of the House of Lords Select Committee on Artificial Intelligence. Other speakers included Dr Anne Dobrée, Head of Seed Funds, University of Cambridge Enterprise and Calum Paterson, Managing Partner, Scottish Equity Partners, who’s also Chair of the BVCA.

    ICAEW is collaborating closely with the government and many business organisations to ensure that businesses are aware of the Industrial Strategy. Many of the Institute’s 150,000 chartered accountants are working in high-growth companies, investing in them or advising them. Institute members, including CEOs, CFOs and FDs, are effectively ‘end-users’ of the new investment.

    ICAEW will continue to work closely with many organisations, including Innovate UK on this front – building on the Institute’s work with the British Business Bank in developing the Business Finance Guide over the past four years.

    ICAEW and the Institution of Engineering & Technology were amongst the first to respond to the call for a new Industrial Strategy when they together published Boosting Finance for Engineering & Technology in September 2016.

    Access the full report at: www.icaew.com/IndustrialStrategy

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    Shaun Beaney, ICAEW Corporate Finance Faculty

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