“If you’re a US company, you go through the same number of funding rounds as your UK counterpart, but you raise X times more,” said Catherine Lewis la Torre, CEO of British Patient Capital.
That gaping gap between the available funding for UK and US start-ups and scale-ups was just one of the problems British Patient Capital was set up to tackle at launch in 2018. This week the organization published an independent assessment of progress to date and the numbers suggest that a strategy of providing public money to leverage even larger sums of money from the private sector , has a positive impact on the UK’s innovation ecosystem. I spoke to Lewis La Torre to find out more.
British Patient Capital – a branch of the British Business Bank – was launched following a government review of the money available to support tech-driven companies. The Treasury Department found that despite a thriving startup community, there was a shortage of patient long-term funding for those companies that needed both capital and time to get their offerings to market.
With £2.5 billion at its disposal, the BPC wanted to act as a catalyst. As Lewis la Torre explains, the organization works with VCs to provide growth financing in phases B, C and D. “They (the VCs) can have a hard time raising funds from institutions,” she says. “We come in early with a check and act as a cornerstone investor. So that the VCs can say to other investors, look, we’ve already booked £50 million.
BPC has already invested £1.3 billion from its pot, but the total commitment, including funding from other investors, is £10.7 billion.
What has all this meant for scale-ups? Well, according to the independent assessment, companies that have benefited from BPC-backed investments have created 4,600 to 5,000 additional jobs and also increased their turnover by an average of £4.7 to £5.00 million a year.
In addition, the pre-money valuations of companies in the portfolio are on average £60 million higher than they would otherwise have been.
The question, of course, is whether the companies in question that would have created jobs would have increased sales and enjoyed their current valuations without BPC’s presence in the market. We can’t be sure, but BPC Senior Manager Dan van der Schans says the evaluation – conducted by research and analytics firm, SQW – included setting up a counterfactual peer group to make the comparisons. In addition, a poll of companies in the underlying portfolio found that 25 percent said growth would not have been achieved without BPC’s involvement, while 50 percent said they would have grown more slowly.
The agenda for scientific superpowers
I ask Lewis la Torre how her organization fits into the government’s wider and much-lauded ambition to make Britain a ‘scientific superpower’.
“People tend to use that expression with a smile on their face,” says Lewis la Torre, acknowledging the skepticism that exists in some circles. “But the UK is great in some sectors, such as life sciences, AI and quantum. We want to make sure those companies get the financing they need.”
And as things stand, about one-tenth of BPC-backed companies are university spin-outs, much higher than the 2.0 percent average for all equity-backed companies, BPC says. A quarter of them have managed to reach the “growth” phase, as identified by the analyst Beauhurst.
But can UK companies compete with better-funded rivals? This brings us back to the funding gap between UK and US startups and scaleups. The ability of US-based companies to raise more capital likely makes it easier for them to convert advanced technology into commercially viable products. Is there a way to close that gap? Lewis la Torre thinks progress is being made and BPC is playing a role. She cites the fact that her organisation’s £1.3bn investment has contributed to total funding of £10.7bn to date.
“That’s a good start, but the job is far from finished,” she says. And as she acknowledges, the UK isn’t alone in trying to ensure their tech champions can compete with their counterparts in North America. “We are closing the gap, but so are other countries,” she says.
One thing that would help is to have more institutional money — say, from pension funds — flow into venture capital funds. “It’s important to have more institutional capital,” says Lewis la Torre. “There is some, but at the moment it is mostly from the US. But the institutions in the UK are moving. There is room for more.
BPC will undergo two more independent evaluations before its ten-year lifespan comes to an end. I ask how it will be judged. “We want to deliver a commercial return,” says Lewis la Torre. This, she says, will show commercial investors that patient capital strategies can make money.