It’s time savers benefited from Britain’s scale-up success
Growth in every postcode won’t help Brits if the proceeds are invested abroad, says Saul Klein
As a serial entrepreneur, operator and investor I’ve noticed that Britain has a habit of talking itself down, even when the evidence tells a different story. Across the UK, from King’s Cross to our regional innovation clusters, we have quietly built the world’s third largest innovation economy, behind only the US and China.
The challenge now is to create the conditions that allow those science and technology businesses to scale, without being forced to raise over 80 per cent of their scale-up capital from overseas investors.
In the last few years Chancellors, ministers, policy makers, the British Business Bank (BBB) and even the City have sought to create the financial plumbing to back our most promising companies. The opportunity is two-fold: helping British businesses grow into global companies, while delivering long-term savings for our £4.6 trillion pension and insurance funds. Returns that other countries like Canada, Norway and Singapore have been providing for their citizens for decades.
We are a cradle of world-class innovation, yet domestic investors have barely turned the taps on. Of the 1,800 venture backed companies in the UK generating more than £20m in annual revenues, the so-called Mansion House Group have invested in less than 1 per cent of Britain’s growth economy.
Unless there is a change in mindset, our citizens and savers will see no benefit from growth in every postcode. Our growth will benefit nurses in Denmark, teachers in Ontario and the Saudi Royal Family.
But there is a glimmer of sunshine ahead of us. Three years ago at Phoenix Court we saw the opportunity to pilot a scale-up fund in partnership with M&G’s Catalyst programme. Credit to both M&G and the British Business Bank for being the only two domestic investors doing more than talking about allocating capital at this scale-up growth equity stage.
The supply chain of exceptional high growth companies in the UK creating jobs, growth and wealth is not hypothetical, it’s real
And what we have seen from our pilot is that the supply chain of exceptional high growth companies in the UK creating jobs, growth and wealth is not hypothetical, it’s real.
Our Solar pilot fund has backed 18 companies spanning AI, automotive, energy, financial services, novel compute, robotics, semiconductors and travel to name a few, including household names like Motorway, Monzo and Tide.
Unicorns aren’t a myth
These are not the mythical beasts that Silicon Valley calls unicorns. These are real companies doing double digit revenues, creating jobs and often using AI to increase productivity and grow their margins.
Together these 18 companies have an aggregate revenue of £5bn, with 14 of them generating over £100m in annual revenue. They’ve created more than 8,500 high value new jobs across the country: with Monzo in Cardiff, Motorway in Brighton and Raspberry Pi in Cambridge.
Companies that have been founded elsewhere have also built their presence in the UK: like Perk, from Barcelona, in Birmingham and Raisin, started in Berlin, with staff in Manchester. Mistral, which has just raised a record €3bn, has built its largest office outside Paris at Kings Cross, in London’s New Square Mile.
It’s not just jobs for scientists and engineers but roles in all areas – operations, sales, finance, marketing. These businesses are leading reindustrialisation in the UK. Raspberry Pi may have been designed in Cambridge but it is manufactured in Wales, and listed in London.
But given this pipeline of world class investment opportunities it is shocking that the City is still not backing Britain.
Just these 18 Solar pilot companies have raised billions of dollars to date, but the returns will flow to global investors – amongst them DST, General Catalyst, Softbank and Temasek.
At Phoenix Court we believe early is a state of mind, not just a stage, and when we invest in companies at the scale-up stage, we’re looking for a minimum 3x return from that entry point, so we have belief in significant growth ahead.
Recent data from Dealroom has shown how challenging it is to pick these high growth companies – at seed stage – capable of generating over $100m in revenue. Doing so requires access to the strongest pipeline of private companies and the specialist expertise to distinguish the outliers that will continue to compound from the private to the public markets. That capability matters increasingly as companies stay private for longer. Baillie Gifford, early investors in SpaceX, have practiced this approach for decades.
The UK government is bringing investment forward through the BBB, National Wealth Funds and local authority pension funds, but our leading institutional investors need to understand the opportunity that is ready for the taking. Only 17 per cent of the investors in the scale-up rounds of our Solar fund were UK-based.
It’s time that British savers, through the asset allocators of the Mansion House accord, benefitted from living in one of the world’s best innovation economies and joined M&G and BBB in backing Britain.
Growth in every postcode has to deliver returns for more people. It’s time Britain backed itself.
Saul Klein is co-founder and chair of Phoenix Court, home to LocalGlobe, Latitude and Solar funds