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Strategic report

The market context

Fuelling innovation, powering growth

The Covid-19 pandemic has accelerated the adoption of digital technologies changing the way we work, learn and are entertained. The race to find a vaccine has focused attention, and capital, on improving healthcare across the globe.

As we adapt to the impact of Covid-19, breakthrough innovations based on digitisation, deep technology and life sciences are set to create a wave of transformative, high-growth companies.

With many world-class universities, a strong track record in science and research, and a technology sector now regularly producing global champions, the UK is well positioned to be a leader of this wave.

Over the past decade the UK’s technology sector has grown to become a global powerhouse, growing six times as fast as the wider economy. At the forefront of new breakthrough treatments for disease and injury, the UK now has the largest group of life sciences companies outside of the US.

Over the past decade the UK’s technology sector has grown to become a global powerhouse.

Our mission and vision

Our vision is for more home-grown and fully-funded, high-growth companies to emerge as significant players on the global stage. And while the UK has long been recognised as a great place to start a business, historically a lack of patient capital has seen some firms sold too early to trade buyers, instead of continuing their own positive and sustained growth trajectory.

Increasing the amount of later-stage funding available to our high-growth innovative companies is a key part of our work, enabling our most promising companies to achieve scale as independent businesses within the UK. That is why our investment focus is on venture growth opportunities.

As well as providing our own funding, attracting more institutional capital to the asset class is critical to increase the diversity, and size, of our venture growth managers.

At an appropriate time in the future we intend to privatise British Patient Capital, so that it becomes a permanent and integral part of the UK’s financing landscape.

BBB BCP market context abstract tech
We are here to enable high-growth innovative companies to scale-up to become global champions.

There is significant progress, but challenges remain

UK venture and venture growth fund managers are increasingly well capitalised and experienced. For the first time in 2019, the number of follow-on funding rounds outstripped first-time deals.* We know that for our innovative companies to be successful they need multiple funding rounds, and this is a strong signal that our private small business equity markets are maturing. While great progress has been made, significant gaps remain.

In the last 10 years the average size of later-stage UK venture capital deals has tripled. However, the US has seen the same increase over the same time period. After a decade, later-stage venture capital deals in the US remain over twice as large as those undertaken in the UK at £24m compared to £11m. See figure 1.

While the UK has closed the gap with the US in terms of average fund size, a closer examination reveals the US has a significantly more distributed concentration of capital. Only 6% of all venture capital raised in the UK was by funds greater than £600m, compared to 37% in the US, as per Figure 1.

Given the strong relationship between fund size and the size of funding rounds, this puts UK companies at a disadvantage to their US counterparts, allowing US venture-backed companies that do go public to both remain private for longer and achieve significant valuations – and market penetration – before listing.

By increasing the number of funds of sufficient scale with enough firepower to support larger, later-stage funding rounds, British Patient Capital will enable more companies to achieve their growth ambitions and boost the UK’s economy.

Figure 1

Average size of later-stage venture capital deals (£m)

BBB BCP Average size of later stage venture capital deals Graph

Source: British Business Bank analysis of PitchBook

Figure 2

Proportion of VC fund capital raised by fund size category (2017-2019)

BBB BCP Proportion of VC fund capital raised by fund size category Graph

Source: British Business Bank analysis of PitchBook

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