Today, the new £375M (approx €434.68M) Future Fund: Breakthrough — announced by the Chancellor of the Exchequer at Budget 2021, opens today for applications. This UK-wide programme will deliver £375M of government funding via British Patient Capital – a commercial subsidiary of the British Business Bank.
Through this programme, British Patient Capital will make co-investments with private sector investors in later-stage R&D-intensive UK companies that are operating in sectors such as quantum computing, cleantech, and life sciences.
According to HM Treasury, in order to be eligible for this scheme, businesses must have commitments of 70 per cent of an investment round from private investors with a track record of financing innovative companies – such as venture capitalists.
“It is part of the government’s multibillion-pound investment in research and development to help build a future economy, create skilled jobs and cement the UK’s status as a scientific superpower,” according to a statement from the British government’s economic and finance ministry.
Besides, the Chancellor of the Exchequer Rishi Sunak today announced that he will host a Treasury Connect tech conference in East London in September to bring together the CEOs and senior leaders of the UK’s biggest tech firms and investors.
“Technology and innovation will be at the heart of our future economy which is why we are investing billions in R&D to help cement our status as a world-leader in this field,” says Sunak.
He further adds, “Above all, our investment will incentivise collaboration between our most ambitious entrepreneurs and private investors, helping to commercialise breakthrough products such as new medicines and green technologies that could change our lives for the better – all while creating high-skilled jobs that help boost the UK economy.”
How does the scheme work?
This programme is led by an investor, which means funding applications can only be made by a qualifying lead investor and not by companies. In order to start the application, the investor must complete an online application form, to get an assessment of their eligibility to act as a lead investor.
The process thereafter is as follows:
- Assessment of lead investor eligibility by British Patient Capital
- British Patient Capital is introduced to potential investee company by lead investor
- Assessment of company and transaction eligibility by British Patient Capital
- Evaluation of investment opportunity by British Patient Capital
- Decision by British Patient Capital’s Investment Committee
The maximum Future Fund: Breakthrough will contribute to an investment round is 30 per cent. And, as a fully commercial scheme, Future Fund: Breakthrough will invest on the same terms as private sector investors.
This scheme is different to the now-closed Future Fund that provided convertible loans of up to £5M (approx €5.79M) to a wide variety of innovative UK companies, to address the funding challenges caused by Covid-19.
Here’s what the ecosystem thinks of this new scheme
Ilyas Khan, CEO of Cambridge Quantum, told Silicon Canals, “From the point of view of the quantum computing sector, The UK Government’s Future Fund is an excellent follow up to the highly successful Quantum National Technologies programme that kicked off in 2013 and which has been instrumental in establishing the UK as a global leader in this critical technology. Setting up a commercially-oriented investment programme alongside the more foundational research and development funding is very positive.”
Speaking on the development, Jack O’Meara, CEO & co-founder of Ochre-Bio, also shared his thoughts with Silicon Canals. He says, “It’s exciting to see the UK government being intentional about supporting the growing deep technology sector here. Sources of growth capital are few and far between on this side of the pond, so new entrants, with a long-term view, are most certainly welcome.”
Wil Benton, co-founder and Partner at Metta, tells SC, “The Government’s Future Fund has deployed over £1B into British startups since launch – investment matched by the private sector – effectively making it one of the largest (and youngest) VC funds in Europe.”
Benton adds, “The new Breakthrough fund focuses on growth opportunities in later-stage scaleups, instead of supporting any qualifying startup as the initial version did. Given how competitive the capital markets are right now, what is the Government’s value-add to prospective investees? Good startups are careful to avoid dumb money. I imagine the good high-growth startups raising £20-30M rounds (and their investors) are going to be even more cautious.”
“Some of the most exciting innovations are being developed in the UK today – from holographic displays to most efficient AI algorithms. This trend might soon change due to Brexit, if international fees at top universities scare top talent away, and restrict the talent pool for R&D-intensive companies too. We welcome governmental initiatives that will help us grow despite those potential pitfalls,” says Aleksandra Pedraszewska, Co-Founder and COO, VividQ.
Sharing her views on this development, Julia Hawkins, General Partner at LocalGlobe, says, “It’s great to see the UK government backing fast-growing tech companies with the new Future Fund breakthrough scheme. Time and again we hear about the difficulties that those in the life sciences and healthtech sector have accessing later-stage capital, particularly for R&D-intensive companies. This will go a long way to supporting those businesses which involve years of research to develop their technology. Our science and research in these fields are globally renowned but removing some of the hurdles our leading entrepreneurs in science-backed companies face is urgently required if we are to compete on a global scale.”
Harry Briggs, Managing Partner at OMERS Ventures, opines, “The Future Fund breakthrough scheme is good news for the companies in just those sectors that require years of research and patient capital to commercialise their technology, such as quantum computing or life sciences. The investments through the fund will also help great UK companies stay independent for longer and become future global champions without the pressure to exit early to an international, deep-pocketed buyer.”
Company eligibility criteria
In order for a company to be eligible for the scheme, it must meet all of the following eligibility criteria. The applicant should be UK incorporated with significant UK operations, meaning half of the company’s employment base and half of its research employees should be based in the UK.
In addition, the company must also carry out R&D activity in the UK by meeting 3 criteria, including R&D spending must be minimum of 10 per cent of total operational cost base on average over the last 3 years or at least 15 per cent in one of the past 3 years; the company should be developing defensible intellectual property in the UK and should be its main revenue source; Company’s 20 per cent or more employees should carrying out research for at least 3 years from the date of investment, in roles that require a relevant master’s degree or higher.
The company must also have raised £5M (approx €5.79M) in its previous rounds in the last 5 years prior to Future Fund: Breakthrough investment. And the company must be raising a minimum funding round of £30M (approx €34.77M).
British Patient Capital
British Patient Capital forms part of the British Business Bank’s commercial arm. Its mission is to enable long-term investment in innovative firms led by ambitious entrepreneurs who want to build large scale businesses.
Speaking about the scheme, Judith Hartley, CEO, British Patient Capital explains, “With many world-class universities and a strong track record in science and research, the UK is fertile ground for creating high-growth companies based on cutting edge technologies. Through the commercialisation of R&D, these transformative companies will help accelerate the deployment of innovative breakthrough technologies that can transform major industries; develop new medicines; support the transition to a net-zero economy and strengthen the UK’s position as a science superpower.”
British Patient Capital was launched in June 2018 and has £2.5B (approx €2.89B) to invest over 10 years in venture and venture growth capital. This is to support high growth potential innovative UK businesses that need funds to scaleup. The British government has already committed over £1.3B to a growing portfolio of now over 500 high-growth innovative firms through British Patient Capital.
The Future Fund was introduced by the government in March 2020. According to the HM Treasury, this scheme provided more than £1B of convertible loans to 1,190 businesses to help them through the pandemic.
According to the HM Treasury, “the UK’s most innovative companies are key drivers of future growth and it is estimated that 1 per cent growth in these firms could grow the UK economy by £38B.”
As announced at the Budget in March, the HM Treasury claims that its Innovation Strategy will set out the steps the government will take to boost innovation in the UK.
The government spent £14.9B on R&D in 2021 and 2022 — the highest level in four decades. This was done to achieve the Treasury’s target to increase total public and private R&D investment to 2.4 per cent of gross domestic product (GDP) by 2027.
Hartley says, “Future Fund: Breakthrough will enable these R&D intensive companies to raise the patient capital they need to fuel the later stages of their growth, and in doing so, help ensure the UK is a world leader in the industries of the future.”