Last November, the Treasury launched the Patient Capital Review.
Its aim was to identify the barriers that innovative companies may face in gaining access to long term, supportive finance.
It is being overseen by an A list of entrepreneurs and investment experts, chaired by former Permira head Sir Damon Buffini, who are supremely well-qualified to define the issue and recommend solutions.
As investors in British innovation, the Royal County of Berkshire Pension Fund applauds the mission to help British innovators and young companies to raise patient capital from long term backers. As part of the process, the panel has asked people to contribute to their consultation process, and we have written to Sir Damon this week with our thoughts on this critical and often vexing issue.
Often it is the lack of available information about entrepreneurs seeking capital that prevents institutions identifying potential investments.
As a pension fund seeking to invest in this sector, we rely heavily on our network to source appropriate investment opportunities.
This means that, for every investable opportunity we find, many dozens of others may go unnoticed. Similarly, entrepreneurs seeking finance find it difficult to find the necessary information to access potential investors.
In order to remedy this information gap, I suggest that the Department for Business, Energy and Industrial Strategy should create a central, independent, searchable database, where entrepreneurs and companies seeking finance – and, more importantly, mentoring – can register to be matched with appropriate investors. Similarly investors could register their interest and specify their criteria, to inform and attract investee companies.
The Patient Capital Review has concluded, unsurprisingly, that there is a dearth of institutional capital available for later-stage venture capital investments. Such a database will facilitate investment in British innovation, and play an important role in realising Britain’s industrial strategy.
This idea has in fact already been put into practice by one adviser, Future Planet Capital, which provides a platform to connect investors with innovative university startups. We are an early investor in Future Planet, and see huge potential in its investment model.
In Silicon Valley, it now takes more than eight years for a venture capitalist to monetise a successful innovation investment. Such a timescale sits uncomfortably with the structure of many British venture capital funds, but is often the time that a technology company needs to develop and commercialise its idea and business model.
I believe that investors need to take a longer term view in order to truly support the talent which we are fostering in this country. Innovative companies improve productivity and create employment, and also tend to fit well with environmental, social and governance principles for investors, who are increasingly concerned about the social impact of their investments.
To take things further, the government could create a new class of “innovation investment companies”, which could be either listed or privately held. All income and capital gains within these companies should be tax exempt.
Further consideration should be given to the appropriate tax treatment of distributions received and capital gains tax paid on sales by shareholders.
Another area of concern is that the government places too much focus on the exploitation of intellectual property originating from British universities’ research teams. Universities are not the only generators of innovation: research councils and industry and serial entrepreneurs are also significant sources. Any outcomes from the Patient Capital Review should include these if Britain is truly going to exploit its innovation strengths.
Britain is home to extraordinary talent. Our mission is to make it more straightforward for this talent to raise long term, stable investment so that we can continue to be a global leader in innovation.