Written evidence submitted by ScaleUp Institute



  1. Introduction


1.1.     The ScaleUp Institute is pleased to respond to this inquiry on the UK Venture Capital Market by the Treasury Select Committee.


1.2.     The ScaleUp Institute (SUI) is a not-for-profit private sector led research institution with a mission to make the UK the best place in the world to scale a business, not just start one. We work across the private, public and education sectors to ensure that the UK is able to maintain a robust and attractive ecosystem for scaling businesses.


1.3.     The SUI undertakes detailed research, education programmes and wider projects with the public and private sector in support of these aims. 


1.4.     We seek to provide data, evidence and insight to the overarching policy development process to inform both private  and public sector initiatives. We  publish an Annual Review each year which summarises the current state of the UK scaleup ecosystem, and wider ‘case study’ assessments of programmes with impact for scaling businesses.  Our work has been extensively utilised by private and public sector bodies both in the UK and internationally to evolve growth support. This includes engagement with various Select Committee and policy initiatives such as the Prime Minister’s Council on Science and Technology and the Government Life Sciences Scaleup Taskforce.


1.5.     This response provides an overview of the relevant data we have pertinent to this inquiry, and the broader context within which the Venture Capital market should be seen within the Growth Economy in order to understand both the pressures that currently exist in the marketplace, and the benefits which can accrue from the deployment of venture capital.


  1. Market Context


2.1.     A Scaleup business is defined as an enterprise with average annualised growth greater than 20% per annum, over a three year period. Growth can be measured by the number of employees or by turnover.


2.2.     Scaleup businesses, which are SMEs, number 33,955 in the UK, and are critical to the economy across all sectors and localities. They generate £1.2 trillion in turnover, more than half of the total contribution from all 5.9 million SMEs. As companies, scaleups are highly innovative and international, employing some 3.1 million people. with an average turnover of £34.3m and continue to outperform the economy as a whole[1]. Analysis is also made of our scaling pipeline - i.e. businesses on the cusp of scaleup growth who have the high potential to reach that status of which the UK currently has circa 16,700.


2.3.     Scaleup businesses face specific challenges in relation to Access to Markets; Access to Talent; Access to Finance - specifically Growth Capital, within which Venture Capital has a key role; Leadership Development; and Infrastructure (particularly appropriate physical space / facilities to support their growth).


2.4.     Retaining these innovative, export led, companies in the UK and enabling their scaleup development is vital in the current economic context to retain international competitiveness and foster future economic growth. These firms are key to our local communities, future job opportunities and ‘levelling up’ imperative. This means ensuring that appropriate steps are taken to unblock the challenges they identify, and ensure that the right finance is available to fuel their growth.


2.5.     When we look at countries that are ahead of us in scaling businesses - as evidenced in our Future of Growth Capital Report[2] (which assessed there to be a £15bn growth capital gap across asset classes, sectors and regions in the UK) we see longer term, at scale interventions such as the Small Business Administration in the US or KfW in Germany.  Additionally they have significant depth of capital, including greater use of Venture Debt as an instrument, as well as a greater deployment of Institutional capital - for example in Canada or via a Sovereign Wealth Vehicle. These countries also have strong federated structures at a regional level, close to the businesses, to enable capital deployment.


2.6.     The UK has over the past decade created many of the right ingredients to foster scaleup growth capital, from tax incentives to the evolution of the British Business Bank and Development Banks across the UK such as the Development Bank of Wales, the Scottish Investment Bank and Invest NI, alongside the important role of Innovate UK. This has helped foster our Venture Capital and growth capital communities alongside private sector initiatives.


2.7.     These Agencies need to be given longevity and continued scale and flexibility to continue to work with the private sector to further foster the UK’s Venture and Patient Capital asset classes. This should be done alongside initiatives to unlock UK Institutional Capital to work with the VC community to further scale it and develop the continuum of finance through scaleup growth, and across sectors and geographies.


2.8.     The Future of Growth Capital report (published in August 2020)[3] laid out several recommendations to take this forward with the guiding principles of what can be Accelerated, Expanded, Realigned, Created and Sustained. Many of the recommendations are currently in train, such as the work now underway by Government on Solvency II; the Listings Review; the Bank of England’s Productive Finance Working Group; the recent Fintech and Life Science reviews; the evolution of Regional Funds and Future Fund: Breakthrough. We also see the evolution of High Growth Teams, which are increasingly emerging both within the Private Sector and Government, as an important tool to support and connect companies as they grow to the services, and capital they require. But momentum and pace needs to be maintained if we are to - on a sustainable basis - close our Growth Capital Gap and face off against the headwinds currently at play in the global environment.


2.9.     The world of course is not standing still. Many other countries are actively seeking to increase their own scaleup populations, or to create a fertile business environment to attract scaleup companies to move their operations from overseas. For instance, Canada has maintained pace with the UK in creating and attracting scaleup companies.  It has also worked hard to unlock institutional investment from its own pension funds to fuel scaleup growth and has a stated goal to double the number of scaleups by 2025. Singapore has  introduced specific scaleup plans to attract high growth businesses to their economy and  has recently adjusted their listings rules to allow for Dual-Class Share Structures as part of a wider set of scaleup initiatives including Scale-Up SG[4], bringing them in line with the US, Hong-Kong and much of Europe. Indeed, the European Investment Fund is also looking at the EU’s broad IPO environment and scale up funding options. The French ‘Tibi’ investment scheme has an explicit goal to increase the number of ‘scaleup’ companies in France. This is gaining prominence in Europe as a whole under the French Presidency of the European Union during the first 6 months of 2022[5].


2.10. It is critically important for continued progress to be made, with policy solutions joined up at different levels of Government, and at a regional level to ensure that the capacity exists to support scaleup growth both regionally and nationally. It is also important for Government to provide clear market signals that ensure confidence is maintained at a time when there is substantial uncertainty for both companies and investors.



  1. The current state of the venture capital industry in the United Kingdom, including opportunities and threats, such as the availability of domestic capital to allow firms to scale up in the UK.


3.1.     Maintaining deep and diverse pools of capital across the whole continuum of funding is key to scaleup growth, and we know from our research that Angels and VCs play a key role in the growth journey of scaling businesses. In our 2021 ScaleUp Business Survey, 49% of scaleups report currently receiving Angel investment as a source of equity, and 54% report utilising Venture Capital as a source of equity finance.


3.2.     The VC industry estimates that £12bn was invested by VC companies in 2020 with the majority going to SME companies. This has been supported by the consistency of tax and R&D initiatives and BBB cornerstoning (as expanded upon below).


3.3.     When we assess this from a scaleup economy perspective and specifically the Venture Capital contribution to UK scaling businesses who have passed the threshold of £10.2m in turnover or over £5.1m in assets, we can further see the fundamental role of this asset class to scaleup velocity. For example in 2020 circa £5.32billion was disclosed as being invested by VCs in UK visible scaleups[6]. Whilst this will not constitute the totality of Venture Capital money invested given that some deals are not visible, it emphasises the importance of the asset class to scaleup growth,  which brings with it not just funding but also crucial market and talent expertise.


3.4.     This is further underlined in the 2021 British Business Bank report on UK Venture Capital Returns[7], which notes that the performance of UK VC funds increased sharply across 2020-21.


3.5.     The ScaleUp Index also indicates the important role of the British Business Bank in the UK investment landscape in supporting this asset class. Of c 40 firms cornerstoned / co-invested into by the British Business Bank in 2019, the majority have in turn gone onto invest in one or more scaleups/scaling businesses since 2011.


3.6.     That said, there remains work to be done in ensuring our UK Venture capital base is at scale across all localities of the UK and sectors and has sustainable levels of follow-on capital that are not reliant on overseas flows.


3.7.     Whilst VC Regional presence is increasing and connectivity is improving as VC firms are setting up regional offices or regional investment teams which actively travel to find deals - a situation also being improved by increased digital connectivity - there remains regional and diversity related disparities.


3.8.     One of the key drivers of local growth is proximity to capital, and our evidence base reflects ongoing regional and sectoral gaps. This is why it is important that the recent Spending Review announcement picked up on recommendations for expanding the Regional Funds operated by the British Business Bank including the Regional Angel Programme.


3.9.     We also need to enhance the connectivity and scale of venture capital available.


3.10. The Future of Growth Capital Report highlighted substantial unfunded opportunities in regions across the UK and specific cyclical gaps[8] Sectoral gaps were also clearly visible -  as was the fact that significant investor were from overseas versus UK resources[9]. A fact also reflected by the Venture Capital Industry which notes that 63% of investment into Tech businesses of all sizes came from overseas in 2020 (up by 50% from 2016).


We are in the process of further updating these numbers both for asset classes and on a regional level with the latest data which will be available later in the year.


3.11. To further explore the funding dynamic at a regional level, across 2021 we ran 25 roundtable and education sessions covering more than 1,000 participants, including intermediaries, businesses and investors. From all areas of the country. These highlighted a number of common factors relating to funding including:


             the importance of better connectivity between Scaleups and Funders;

             the ability to create Increased visibility of scaleups and growing businesses, particularly in regions outside of London to attract investors to that region; and

             the importance of targeted regional funds that can be flexible to the needs of particular emerging clusters / businesses within a particular locality.


3.12. Overall whilst there is an ongoing developing UK Venture Industry and good fundamentals  focussed policy on that continuing to evolve is necessary as is the ability to scale the UK VC industry up through ensuring it can readily and easily access UK institutional capital. In this regard it should be noted that there is a substantial drop in the percentage invested in equities by UK Pension Funds, with 72% invested in equities in 1998 compared to just 12% in 2018 and that is why the current Government initiatives such as that work underway in HM Treasury, DWP and the Bank of England to unlock this capital remains vitally important. As is the role for the British Business Bank and notably British Patient Capital within it.


3.13. This is particularly so given that despite strong investment figures in 2021, current market uncertainties suggest that there will be a more constrained funding environment in 2022 and it will be important to ensure that we have all of the levers at our disposal to support UK growth.


3.14. The escalator and continuum of finance is critical to build and policy initiatives must continue to recognise the value of Angel, VCT and specific Crossover fund investors as well as strengthening the ongoing work of the British Business Bank and Innovate UK to foster this. (see section 5).





3.15. Within this picture, it is essential to ensure that diversity related disparities are addressed as part of wider efforts to unlock greater investment capacity. Female and BAME-led businesses are under-represented by VC investment in UK high growth firms. The Rose Review, and work by the British Business Bank, has showed that all female founder teams get less than 1% of venture capital (VC) funding, and mixed teams getting only 10%[10]. The recent CREME report ‘Time to Change’[11] emphasises that BAME entrepreneurs have been particularly hard hit by the pandemic.


3.16. In a constrained market environment there is a risk that existing inequalities within the system relating to diversity or geographical location, could become further amplified. Many of the key pillars of the current UK Growth Finance environment were developed in part as a response to the financial crisis, maintaining a clear set of initiatives to foster investment will be a priority in the face of potential financial headwinds.




  1. The operation and effectiveness of the current tax incentives (such as the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs)) in the venture capital market, including any options for change.

-         The operation and effectiveness of the regulatory regime(s) concerning venture capital.


4.1.     The current tax incentives in the UK have been essential to building capacity across venture asset classes from angel to VC to VCT and need to be maintained, extended and as necessary evolved as outlined below:


4.2.     The Enterprise Investment Scheme (EIS) continues to be pivotal in driving the supply of early-stage risk capital to some of the UK’s most exciting companies, while also offering attractive tax breaks to investors. Recent stats released by HMRC are evidence of its success. For example, in 2019 to 2020, 4,215 companies raised a total of £1.9 billion of funds under the EIS. There is currently a “sunset clause” in place in relation to income tax relief that is offered by the EIS (and indeed the Venture Capital Trust scheme, but not the Seed Enterprise Investment Scheme (SEIS)). This means that without Government approval, this relief will cease to exist from 6 April 2025.[12]- Given the current state of the UK and global economy and the need to ensure the continued engagement of private sector investment players to maintain and increase the much needed growth capital this scheme must be retained and renewed.


4.3.     It is vital for this to be refreshed to ensure that companies which have benefited from this tax relief can continue to do so, and investors can develop a forward pipeline with confidence.


4.4.     One of the biggest, ongoing challenges in this area is that a perception of continuous changes to EIS, the Seed Enterprise Investment Scheme (SEIS) and VCTs due to the constraints imposed by State Aid rules (the sunset clause was introduced as a result of required state aid in 2015) can create confusion and concern which leads to investors holding back investment.


4.5.     At this time of political, EU and global economic uncertainty, it is ever more important to maintain business and investor confidence by keeping key policy measures stable and addressing the implications of State Aid Rules, and ensuring that investors can be confident in the ongoing existence of these schemes to support their investment to UK firms.


  1. The role of other key bodies, such as the British Business Bank and the programmes which it oversees (including the Future Fund and British Patient Capital), and the Advanced Research and Invention Agency, and how they can support the venture capital market.


5.1.     The British Business Bank, British Patient Capital, Innovate UK and our Regional Development Banks (Development Bank of Wales, the Scottish Investment Bank and Invest NI) are key pillars within the UK Funding Landscape. As noted elsewhere, countries which are ahead of us in scaling businesses have long term, at scale institutions with regional deployment. (The US Small Business Administration has been operating since 1953). We need to build upon the building blocks that we have, and ensure that these are both at scale and equipped to complement a larger institutional capital base once this is unlocked (See section 6).


5.2.     Our work has shown that Innovate UK has a substantial role in underpinning key parts of the growth journey for innovative UK scaleups: In our most recent ScaleUp Index we identify that Innovate UK grants to scaleups during the period equalled with £286m, leveraging £5.2bn of private sector money. We also know that this ‘kitemark’ effect from Innovate UK means that businesses which have been part of their processes raised £24.4m during this period compared to £20.9m for those not backed by Innovate UK.


5.3.     The British Business Bank is also fundamental to the UK funding landscape, with programmes the British Business Bank runs essential to many parts of the growth journey of UK scaleups:

             Enterprise Capital Funds - these help to build a strong pipeline of VC investors. Within our Scaleup Index we can see that of the 40 firms backed by the British Business Bank in 2019, 29 have invested in one or more visible scaleups since 2011 showing the impact that the BBB has in supporting the UK Growth Economy, this further underlined by the Bank’s own research which found that the British Business Bank equity programmes supported around 21% of all equity deals in 2020.

             British Patient Capital supports later stages of growth finance for innovative firms. As the BBB have highlighted in their own work, evidence shows that the average growth stage deal size has increased by 11% to £18.3m in 2020, with deal sizes increasing consistently since BPC was launched in 2018. On a sectoral level, British Patient Capital also has the specific £200m Life Science Investment Programme which is also supported by Abu Dhabi’s Mubadala Investment Company, which will invest £800m into UK life sciences alongside the BPC fund. Utilising structures such as BPC to potentially act as an aggregation vehicle for the deployment of institutional money in to the Growth ‘scaleup economy'  should be further considered by the Government as we noted in our Future of Growth Capital Report (specifically Recommendation 2).[13] This also has the flexibility to be deployed across growth sectors and as part of a review into the future opportunities for BPC learning can also be taken from international markets on pre identifying ‘fast tacking’ potential private coinvestor partners.

             Future Fund - a vital initiative set up during the pandemic to address scaling businesses needs which were not suitable for debt options. The Future Fund is an excellent example of public/ private sector partnership providing up to £5m in convertible loan notes, matched by third party private sector investor support. The Future Fund has issued 1,190 companies with Convertible Loan Agreements worth £1.14bn in total. This is an important initiative that now merits further consideration as to how it can be extended: as it is important to make sure the firms supported under this are performing well and are able to access the follow-on funding they require as they continue to realise their full scale opportunity and grow. This could include considering options such as extending the Innovate UK Edge programme to these businesses to provide greater wrap around support. It will also be important to review the options for extending the Future Fund and the opportunity to deploy follow-on funding to companies within it is a focus the Government should now have - particularly given the broader global dynamics at the moment which are causing the potential of a further liquidity crunch.

             Future Fund: Breakthrough - this fund was based in part upon recommendations from our Future of Growth Capital Report (Recommendation 5), and subsequent modeling work which we undertook that identified underfunding in critical and strategic sub-sectors such as Life Sciences and AI. It builds upon the co-investment concept of the Future Fund with a £375m fund to specifically support innovative companies. Although in its early days this again has the potential to make significant inroads to assessing patient capital gaps in intensive R&D focussed scaling businesses.

             UK-wide and Regional Funds - it is welcome that the Budget 2021 has expanded these with a further £1.6 billion of investment[14] As we have previously reported, between 2010 and 2019, the EIF was the single largest investor to regional backed equity funds. Announcements in the 2021 Autumn budget that the British Business Bank will receive additional money to expand regional funds, and the Regional Angel Programme are therefore both welcome and necessary. We believe that these regional funds must be well attuned to the needs of local areas, and able to work effectively with developing clusters of scaleup businesses in these areas.


5.4.     The Shared Prosperity Fund and Levelling Up Funds also have an important role to play here in replacing EU structural funds – such as ERDF which has had a large footprint across UK regions. As all of these schemes are implemented it will be important to fully monitor how changes to the way that money at a regional level is cornerstoned, and consider how these programmes can be tweaked to better meet the needs of local areas, alongside wider consideration of sovereign wealth fund structures.


5.5.     Venture capital can be focused toward greater opportunities through the successful implementation by these institutions of empowered regional and devolved hubs. These need to be granted with the ability to be agile and deploy funding to sectors and opportunities at speed, through both national and bespoke regionally-designed schemes. This will serve to concentrate opportunities, which should serve in conjunction with enhanced and expanded existing schemes, such as the Angel CoFund/ Regional Angel Programme, venture debt and regional funds both to extend runways of existing mechanisms and expand into areas not yet covered.


5.6.     By adopting this model the local knowledge and insights can be combined with the British Business Bank’s expertise in order to deliver local solutions at a commercially viable scale, as scale will be vital for success.




  1. The merits of policy proposals for strengthening the venture capital industry in the United Kingdom, such as:

-         Opening new pools of capital for venture capital investment, such as pension funds, retail products (e.g. investment through ISAs)

-         Generating home-grown talent through the education system

-         Attracting international talent through the visa system

-         Any other possible Government or public sector intervention


The Growth Capital Challenge


6.1.     The UK Growth Capital Challenge in the UK is well documented. Cruikshank (2000), Rowlands (2009), Breedon (2012), our report “ScaleUp UK” in 2016 which led to the The Patient Capital Review and Buffini Report (2017) and most recently the Future of Growth Capital Report (2020) which we undertook with Deloitte and Innovate Finance, each highlight how this challenge has persisted and evolved.


6.2.     The Government is currently taking a range of welcome steps to unblock perceived supply side issues that have been identified including through the Listings Review, Solvency II Call for Evidence and ongoing consultation, the creation of the Long Term Asset Fund class and the ongoing work of the Bank of England through the Productive Finance Working Group. There have also been substantial recommendations on a sectoral level, which have broad applicability to the overarching challenge in the Fintech Strategy Review and in the Life Sciences Scaleup Taskforce currently underway in Government. However, it is critical that the right model is created to enable this capital to be deployed, and that the right talent can be attracted in order to do this, and that efforts to unlock this money continue at pace.


6.3.     Total pension wealth in the UK was estimated by the ONS to be in excess of £6 trillion during the April 2016 to March 2018 period and is one of the largest single components of UK financial wealth. A very modest portion of the total wealth held here will make a substantial difference to closing the gap in UK patient growth capital. However, exposure to UK equities within this is substantially lower than in previous decades, 12% in 2018 compared to 72% in 1998. Unlocking this will both require knowledge and an appropriate risk appetite to the growth and scaleup economy.


6.4.     To deploy this effectively, we should build upon the tools which we have in entities such as the British Business Bank and British Patient Capital to ensure that the right aggregation vehicles can be developed for institutional money, leveraging the newly re-invested in regional funds announced in the 2021 budget.


6.5.     The development of domestic UK analyst knowledge alongside a coordinated approach up and down the investment ladder will help to support the development of follow-on funding and crossover investors and bridge the gap that we have in this market segment. Crossovers are specialists and the work they do prior to coming in on a crossover round or on an IPO gives confidence to more generalist investors.


6.6.     Specifically, from a life-science perspective, the role of crossovers is central. The majority of successful IPOs in LifeSciences have been cornerstoned by a set of crossover investors who often/usually come into a crossover round that has occurred 2-6 months prior to the IPO. The IPO book is usually covered by these funds (and others like them) by at least 50% when the IPO process is started.


6.7.     At a smaller scale VCTs also have an important role to play here, and we would recommend that restrictions on how VCTs can invest are relaxed to enable them to play a larger role in this area, including enabling them to provide follow-on funding for companies in which they are already invested. It will also be important to ensure that SEIS/EIS can continue to play the right role in boosting investment to innovative firms at an early stage.


6.8.     The French ‘Tibi’ Investment scheme is an important international example to consider in this section. This seeks to crowd in investment expertise from overseas utilising the Government’s convening power, to encourage companies to hold UK offices and create a groundswell of investment expertise. France has earmarked €6 billion for the Tibi initiative, to support a so-called ‘fourth industrial revolution’ in France, attracting foreign sources of capital to locate in France and issue mandates for asset managers based in France to invest in French companies. An internal 18 month review of this, published in June 2021, suggests the scheme has been a notable success so far, with over €3.5 billion pledged by partner investors, and over €18 billion from approved investment funds when third party investors are taken into account. This strategy has a stated objective to finance French Scaleups and the success of the scheme so far has caused them to increase their medium term objectives for the scheme noting “These developments strengthen our determination to establish France as a leading European centre for private financing of scale-ups”. As we have highlighted elsewhere, the world is not standing still – the UK should seek to emulate the scheme as part of the broader suite of policies tuned to improve the investment environment for UK scaleup businesses.[15]


Increasing Investor Knowledge


6.9.     Increasing Investor Knowledge of the Growth Economy is also key. To ensure that efforts across Government and the private sector have maximum impact, knowledge asymmetries must also be addressed across the whole value chain – including within suppliers of capital and intermediaries. This requires attention through the entire escalator – from angel to IPO. Knowledge asymmetries have long been recognised on the demand side for equity but supply side knowledge gaps and a lack of expertise about the nature of the UK growth economy also serve to amplify an embedded culture of ‘risk caution’ amongst institutional investors. This represents a critical vulnerability within wider plans for the deployment of UK based institutional capital, even if regulatory and ‘structural’ barriers are removed.


6.10. If left unaddressed, it is likely that institutional money will flow to asset classes that are already well understood by institutional investors – such as infrastructure projects – rather than toward UK based high growth firms and scaleups. This kind of investor behaviour is also evident within the sectoral analysis we have highlighted above.


6.11. As further noted in the recent FinTech Strategy Review “absence of a strong domestic growth-oriented investor base has led the UK’s capital environment to be less welcoming and experienced than asset managers focussed on US markets for example.”


Initiatives which could be undertaken here include: 


             Encouraging greater use of the Chartered Financial Analyst qualification here in the UK and Developing scaleup economy guidance for institutional investors: from trustees to executive building upon

             Consider broader development of sectoral playbooks / investor focused education - the Invest in Creative Toolkit[16] is a programme we have worked upon with UKBAA and DCMS and has had substantial success in attracting new investors across the continuum of funding (from Angels through Family Offices, and VCs to international players) for creative firms;

             Ensuring placing of scaleup economy leaders onto trustee boards to allow these boards to have access to the best information available as they make their decisions;

             Utilising data to identify companies, and lean in to them sooner. This will also help to bring them together with investors more frequently.


6.12. The forthcoming Scaleup Visa may also have a role to play here, and it will be important for clear connection points to be made between companies that are receiving investment and the visa system to ensure that they are able to attract the right talent they need to continue their growth, and that Venture Capital funds are also able to attract the right talent from abroad.



Unlocking Public Procurement


6.13. Procurement is a part of the investment solution - market access is intrinsically linked to investment and the Government has a section of this - public procurement - strongly within their purview to address. We responded in detail to the Transforming Public Procurement Green Paper consultation: As one considers the unlocking of Institutional Investment to scaleups, one should not ignore the role of Public Procurement in driving scaleup opportunity.


6.14. In countries that are more consistently good at scaling companies - public procurement is better utilised by government to create an anchor for domestic company growth. The US uses this lever to far greater effect than the UK Government currently does. Options to utilise public procurement more effectively in the UK should be strongly considered as part of this broader package of measures.


6.15. This does not need to mean greater expenditure, but rather a ring fencing of proportion of existing departmental procurement budgets to be harnessed directly towards highly innovative scaling companies, leveraging SBRI and PPI mechanisms to better effect.The US is a strong example of this, with the Small Business Administration representing an at scale, long term intervention in this space.




  1. The effectiveness of government policy around venture capital in meeting wider government objectives (for example: around “levelling-up” and tackling regional inequality, the aim for the UK to be a science and technology “superpower”, net zero).



7.1.     In 2020 we published research which looked in detail at the factors which drive scaleup growth within particular areas. From our analysis, we found three main factors driving scaleup growth - equity finance, high quality skills and sectoral clustering[17].


7.2.     A number of other factors demonstrated no clear relationship with scaleup growth - SME bank lending rates, proportion of large firms, start-up density and start-up survival rate. To calculate this we used spatially lagged variables for each factor which account for the effects from neighbouring areas. We also accounted for the starting GVA of the area and GVA growth. The effects remained robust even after controlling for these factors. This shows the importance of ensuring adequate Venture Capital is available to support growth across the whole of the UK.


7.3.     The British Business Bank Regions and Nations Report (the first issue of which was published in October of 2021) further highlights the importance of equity to regional growth, with the largest four regions within the UK, London, the South East, the East of England and the North West, host 55% of the business population but take in 86% of equity investment. These areas also outperform on private debt, attracting 69% of investment.


7.4.     Indeed, as we have stated previously, there are substantial differences in the depth of capital available at different stages of the value chain.  As part of in depth research which we undertook in the Future of Growth Capital Report, we identified substantial unfunded opportunities at a regional level.


7.5.     Individual Angel groups on a regional basis are also a critical part of this picture, with the 2020 British Business Bank and UK Business Angel Market Report identifying that 56% of angels are based in London and the South East and over half of all UK angel investment. From our work mapping the UK angel ecosystem as part of the Invest in Creative Programme, we identified that in Cambridge one syndicate alone undertakes £30m investments annually, whereas in analysis we have undertaken with UKBAA in Greater Manchester, West Midlands and West of England, across 20 angel networks in these areas a combined total of circa £29m is deployed.


7.6.     This makes the expansion of regional funds announced in the 2021 Autumn budget timely and welcome, in particular the confirmation that £150 million will be available for the Regional Angel Programme to tap into the nascent Angel market outside London and the South East. It is also important for the implementation of these to take account of emerging sectoral dynamics we have highlighted elsewhere, to ensure that clusters of scaleup businesses in specific sectors which may require more specialist finance options - such as Life Sciences firms - are equally able to flourish.



  1. Conclusion


8.1.     In conclusion the Venture Capital Industry is critical to the UK growth economy, and scaleup businesses. Further fostering this industry, including public and private initiatives, and the unlocking of institutional investment to provide the depth of capital required to support UK scaling firms will be an important part of unlocking future economic growth.


8.2.     Outside of any specific regulatory changes, we believe it is particularly important for action to be taken to increase knowledge and capacity within the UK’s domestic investor and analyst base. The role for Government and key institutions such as the British Business Bank and Innovate UK in bolstering this capacity, including across early stage risk capital, such as angel networks, should also be reflected within long term strategic plans, and forthcoming elements of the levelling up agenda. Market (procurement and internationalisation) and talent access considerations must also be recognised as part of the development of wider policy in this area.


8.3.     Proactively identifying and relationship managing our UK high-growth and scaling businesses through their lifecycle making sure that they get connected to public and private resources at the most appropriate time is a powerful tool. These teams would make direct connections with the UK’s fastest growing companies, and ensure that they have access to the right wrap around support, connecting them to the right public and private sector programmes to support their talent, market access or leadership development needs, as well as working proactively to connect them to the right capital to support their growth. Equally, the importance of diverse sectors to the UK economy and our global aspirations must not be overlooked - especially those which require sector specific knowledge such as Life Sciences.


8.4.     A key contextual point for all of the evidence provided to the committee, must be the interconnected nature of the value chain from a startup business to a global scaleup business - including IPO. Ensuring that we have the depth of capital, the capacity, the knowledge, and the relevant expertise to deploy this capital is critical if we are to maintain a robust cohort of UK growth businesses.  This will also help to attract other innovative firms from abroad.




8.6.     And - finally - each of these policy initiatives need to be implemented at scale, and for the long term and must continue to recognise the need for a focus at each stage of the finance ladder from angel and seed, through to IPO.



June 2022



[1] ScaleUp Institute analysis of latest ONS statistics (Publication forthcoming, Summer 2022)

[2] The Future of Growth Capital Report, ScaleUp Institute, Deloitte and Innovate Finance, 2020:




[6] The Scaleup Index 2020


[8] Regional Gaps noted in Future of Growth Capital Report: North West c£2.0 Bn; North East c£1.0 bn; Midlands and East of England: c£1.7bn; South West: c£0.5bn; South East: c£1.3bn.


Specific cyclical gaps relating to asset classes: Angel: c£0.2bn; VCTs: c£0.3bn; Equity (other than Angel / VCTs): c£5-8bn; Venture Debt: c£2bn.

[9] We also provided modelling relating to specific subsectors to HM Treasury as part of their development of the Future Fund. This showed Investor bias - within ‘tech’ investment categories - towards Internet Platforms, Mobile Apps & SaaS, with significant gaps in sub-sectors e.g energy; life sciences; clean tech. Moreover, the majority of platform and mobile investment comes from overseas investors - and is ‘on par’ in SaaS - representing broader UK competitor challenge and gap.


The US is the largest source of overseas investment in each of the top 3 sub sectors. The median raised by a scaleup is £2.4m of equity. - Link to Diagram

[10] See British Business Bank, ‘UK VC and Female Founders Report’


[12] National Statistics: Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Social Investment Tax Relief: Commentary 2021,companies%20raised%20%C2%A31%2C867%20million.

[13] Future of Growth Capital Report p41-42:

“To catalyse action, Government should in the forthcoming CSR invest further through the BPC structure and at the same time seek to accelerate its partnership (move towards) with the private sector by forming a much more structured relationship between the BPC and the private sector, in a more formal Joint Venture type arrangement with private sector institutional and scalable funds, where it can leverage both institutional monies, analytical and distribution power.  Lessons can be drawn from the Canadian models on such an arrangement which fosters collaboration and cooperation, please cross reference with page 38, Canadian Pension Schemes.


“Such a Joint Venture arrangement would provide the aggregator structure desired by the institutional players at the same time as delivering at scale regional funds with more ready access to investor pools. There are a range of UK private sector Funds that could be harnessed to form part of the Venture such as Foresight, BGF, Mercia, Minerva etc. Leveraging also the structures that have evolved through e.g. NPIF/Midlands/Wdb/SNIB and that require evolution in other regions. From an institutional standpoint the BPC with such a formation would provide the aggregator vehicle desired by institutional players and at scale distribution. Whilst regulatory measures can be developed to encourage investment through such a vehicle in parallel relevant co investment and guarantee structures should be deployed to support institutional and corporate engagement with BPC. This should include the immediate progression of the Small Business Investment Company model identified in the PCR.”




[17] ScaleUp Landscape: Drivers of Scaleup Growth - p26: