U.K. creates £2.5B investment program to help startups grow

The plan is to invest in fixed-term and evergreen funds. (ReeSaunders/CC BY 2.0)

The U.K. has set up a £2.5 billion ($3.6 billion) patient capital program. The fund is part of an initiative to help British biotechs grow into standalone midsized businesses, rather than sell up at the first sign of a takeover bid from overseas.

A lack of access to capital is one reason local biotechs struggle to scale up and grow into commercial businesses. Recognizing that, the British Business Bank is setting up the £2.5 billion program to help biotechs and high-growth companies in other sectors push on past the startup stage. By investing alongside the private sector, the bank thinks it will mobilize investments worth £7.5 billion. 

For now, that remains an aspiration. To get the program started, the bank is transferring around £400 million of existing and approved commitments. Both the transferred commitments highlighted by the bank have a link to life sciences.

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One of the commitments is a £30 million evergreen investment in VC shop Draper Esprit’s £115 million capital raise. Draper Esprit is best known for its tech investments but is active in digital health and has ventured into biotech on occasion. Kiadis Pharma is among its portfolio companies. The business bank also detailed a £9 million investment in the Dementia Discovery Fund, a specialist investment vehicle run by SV Health that received $50 million from Bill Gates last year.  

The early focus on life sciences, amount of cash involved and presence of Russ Cummings—the former CEO of prolific life science investor Touchstone Innovations—as a nonexecutive director have raised hopes for the fund in the biotech sector.

“Through leveraging a further £5 billion private investment, the fund can now create a step-change in the availability of funding to help U.K. life science members to scale and reach their global ambitions,” BIA CEO Steve Bates said in a statement

Whatever the sector, the fund will follow the same playbook. The plan is to invest in fixed-term and evergreen funds. Co-investment alongside portfolio funds is also option. Through these commitments, the bank hopes to anchor funds, enable first closes or deliver boosts that bring investment vehicles up to their optimum size. 

One outstanding question is how effectively the fund will deploy its capital. The answer will emerge over time, but for now the fund can point to its expertise and connections to argue for the likelihood of it being effective.