Andrew Williamson, Managing Partner at Cambridge Innovation Capital says the U.K. needs a better … [+]
Cambridge Innovation Capital (CIC) had a problem. Traditionally an early-stage investor, it was increasingly being asked by companies in its deep tech and life sciences-oriented portfolio to provide the funding they needed to scale. In many respects, this kind of investment represented a logical next step. CIC knew and understood the risks and opportunities associated with its portfolio businesses and was therefore well placed to take a view on providing further capital. The problem was that directing money into scaleups didn’t sit well with the intentions of the core fund.
As CIC Managing Partner Andrew Williamson explains, joining a $200 million funding round – with, for example, a contribution of $20 million – would have resulted in an over-concentration of scaleup finance in the core fund.
“So we decided to launch a new fund,” he says.
The result of that decision is the official arrival this week of the Cambridge Innovation Capital Opportunity Fund. With £100 million at its disposal, the aim of the fund is to support science-led scaleups. And in addition to helping CIC continue to address its own dilemma around the mix of early and growth-stage investment, it’s hoped the initiative will play a part in closing an increasing glaring gap in Britain’s finance ecosystem.
The Growth Finance Gap
As things stand, early-stage companies in the UK are largely supported by domestic investors. However, when larger sums of money are required, much of the capital comes from VCs based in the US or Asia.
“90% of investment comes from overseas,” says Williamson. “That’s great but it seems a shame that we don’t have more domestic capacity.”
Witness a 2024 report from the British Venture Capital Association and market intelligence provider Beauhurst, According to the study, overseas investment in larger VCs has been increasing and in 2023, 94.3% of deals valued at more than $50 million involved foreign finance. The BVCA called for measures to create the right framework for larger VC funds. One proposal was more investment by pension and insurance funds.
Does this matter? Well, in theory at least – and often in practice – a reliance on overseas investors can put pressure on British companies to locate or list overseas, meaning that the U.K. economy does not derive the full benefit from entrepreneurial success stories.
This is a widely recognised problem and following on from work done by the previous Conservative government, the current Labour administration is pressing ahead with plans – under the Mansion House Agreement, to enable and encourage more pension fund investment in scale-ups. This is work in progress and it may take time to produce results, with 2030 as a deadline for tangible progress.
The timescale is a cause for concern. For instance, when I spoke recently to Baroness Stowell, chair of the House of Lords Communications Select Committee, she stressed the need for speed. “2030 is all very well, but we need to accelerate the process,” she said.
Pension Fund Money
However, the CIC Opportunity Fund is – to some degree – demonstrating the role that pension providers might be able to play. The fund is anchored by British Patient Capital – a division of the British Business Bank and also Aviva Investors, respectively committing £15 and £20 million.
Now Aviva Investors is part of the insurance group of the same name and Williamson sees this as an example of how the industry is already playing a role in supporting growth businesses, well ahead of the Mansion House Agreement coming to fruition. “For Aviva, the scaleup space is a great place to invest is at the scaleup stage,” he says.
The Opportunity Fund has already made two investments, both of which indicate the direction of travel. Pragmatic Semiconductor manufactures microprocessors from alternative materials. Riverlane specialises in operating systems and error correction for quantum computers. Going forward the emphasis will be very much on deep tech and life sciences.
This reflects the strengths of the Cambridge University ecosystem, but Williamson says the fund is also looking at more widely, particularly to Oxford and London but also the country at large. The investment will be split between existing portfolio companies and others.
How much difference will a single fund make? Well, Williamson says CIC plans to launch bigger funds in the future, but this is a part of a bigger conversation. The U.K. ecosystem is adept at producing startups with great ideas, but there is a lack of domestic funding at the scaleup stage. If the innovation sector is to fulfil its potential in areas such as quantum computing and AI while also keeping success stories headquartered in the U.K,, more domestic finance providers will be required.