Why Patience Pays: Venture & Growth Capital Trends

By Catherine Lewis La Torre, CEO, British Patient Capital

Britain has a proud tradition of being among the best places in the world for entrepreneurs and innovators to start their own business.

However, once those businesses become established many are unable to fulfil their high growth potential, due to a lack of patient capital.

They might have an innovative idea they want to prove through investment in R&D or a new product to bring to market but struggle to obtain the larger amounts of long-term, venture and growth capital required to scale their businesses.

It often means too many high-growth potential businesses are forced to grow at a slower rate or look abroad when they want to scale up.

Our mission

The Government’s Patient Capital Review 2017 highlighted this problem and warned that Britain was lagging behind the US in this kind of funding and that this is a ‘serious impediment’ to the success of UK entrepreneurs.

British Patient Capital was established to ensure innovative companies across the UK, led by ambitious entrepreneurs who want to build successful, world-class businesses, have access to the right type of funding at the right time helping them to expand, invest in people, develop innovative products and enter new markets.

Trends highlighted in the British Business Bank’s Equity Tracker report

That’s why I’m delighted that the British Business Bank’s annual Small Business Equity Tracker report shows the UK equity investment market has grown 72% in just two years, as equity investment is typically the most appropriate type of capital to fuel a company’s growth.

Smaller businesses in the UK received £6.7bn in equity investment last year, the highest amount ever recorded. 2018 was the second year in a row that investment has been more than £6bn.

Funds supported by British Patient Capital were involved in three of the 10 largest UK SME equity deals in 2018, including the two largest investments in unicorns, Revolut and Graphcore. This highlights the progress British Patient Capital is making in supporting the UK scale-up ecosystem.

In fact, recent growth of the UK VC market has outperformed that of the United States. Since 2016 the UK has had a higher number of deals relative to GDP, 570 VC deals per £1trn of GDP in 2018, 18% higher than the US which had 482.

VC backed companies in the UK are now just as likely to receive follow on funding rounds as US companies, although UK VC deal sizes remain smaller than deals in America. This means there is still more to do.

The Small Business Equity Tracker report shows that growth stage deals, backed through British Patient Capital, are larger than the private equity and venture capital market average, ensuring that the scale up companies we back are better capitalised and therefore more resilient and better able to compete in global markets.

Regional investment

Another area where progress is being made is in the increasing value of equity finance investment outside of London, a key concern highlighted in the Government’s Patient Capital Review.

Whilst London is still the largest market by region, 2018 saw the value of equity investment outside London increase by 29% (£616m), to stand at £2.8bn.

The East of England, North East and West Midlands are the three regions driving this growth with investment increasing by 118%, 115% and 81% respectively.

British Patient Capital continues to work with the British Business Bank to ensure finance markets work better for smaller businesses in whichever part of the country they are based.

The report demonstrates that British Patient Capital activities are already beginning to address the funding gap affecting scale up businesses across the UK, thereby helping to develop a venture and growth capital ecosystem that enables our highest potential businesses to scale up and thrive, resulting in better outcomes for the UK economy – patience pays!