British firms are having to turn to global sources of funding, when there’s capital here in the City we could direct towards homegrown start ups, writes Nicholas Lyons.
THE recent report by the Treasury Select Committee on the UK’s Venture Capital industry should ring alarm bells for the City. The Committee found that for many British businesses wishing to grow their operations beyond the early funding stages, access to UK domestic capital has been a barrier. As I said in my evidence to the Committee, this often leads to UK firms looking overseas for funding. Alongside a range of concerning findings over diversity in the sector, the report also highlighted a lack of venture capital investment outside London and the South East.
This means that throughout most of the UK regions and nations, opportunities for investment in high-growth businesses are more limited than they ought to be. This may be undercutting the potential for economic growth across the country. Part of the reason for this is that the company age limit for tax relief schemes puts companies outside London, which typically take longer to launch, at a disadvantage.
The City of London Corporation stands firmly behind the findings of this vital report, which emphasises the crucial question of how capital is deployed across the UK.
In the last few days I have been visiting businesses and universities in Leeds and Sheffield. Leeds is a leading financial and professional services hub, while Sheffield is a centre for advanced manufacturing and energy research. The so-called Northern Triangle tech start-ups – those based in Leeds, Sheffield and Manchester – have raised £1.3bn in funding over the last five years. The advances made in Leeds made it a logical place to play host to the launch of the Centre for Finance, Innovation and Technology in February this year.
Firms in the Northern Triangle are a perfect example of the UK’s ability to get start-ups off the ground whilst lacking the deep pools of later-stage venture capital businesses need to accelerate.
The City of London should be able to help thanks to the newly signed Mansion House Compact, which saw nine chief executives from some of the UK’s largest defined contribution (DC) pension schemes commit to allocating at least 5 per cent of assets to unlisted equities by 2030 – unlocking £50bn by the end of the decade. The signatories – Aviva, Scottish Widows, L&G, Aegon, Phoenix, Nest, Smart Pensions, M&G and Mercer – represent around two-thirds of the DC market.
They will invest into tech, life-sciences and bio-tech companies via existing investment vehicles or new ones to boost returns for pension savers and support the development of high growth firms.
The UK must make best use of its pools of capital to back innovative and dynamic homegrown businesses, which will form the future of a successful UK economy, and to make British ownership an attractive option. The Mansion House Compact promises to be a pivotal step towards this goal, fostering increased investment in growth companies across the UK while benefiting savers nationwide. Addressing the barriers to access to capital will also be essential to promote inclusivity, empower diverse entrepreneurs, and unlock the full potential of all the UK’s regions. That is where venture capital must venture further.