British Patient Capital Fund

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The British Patient Capital Fund is a long-term focused financing initiative, established as a response to recommendations from the Patient Capital Review.
What are the main aims and objectives?

The British Patient Capital fund is designed to address the critical funding gap in the UK for innovative firms seeking to scale up. Its main aims and objectives include fostering the growth of the UK's most promising companies by providing them with the long-term financing they need to thrive on a global stage. By attracting private investment, the fund seeks to leverage government funding to significantly increase the availability of patient capital within the UK’s venture and growth capital markets. This initiative not only aims to drive economic growth by supporting the development of world-leading companies in emerging sectors but also seeks to enhance the UK's position as a leading global center for innovation, technology, and entrepreneurship. Through its investments, British Patient Capital aims to deliver both commercial returns and strategic benefits, contributing to the broader economic prosperity and competitiveness of the UK.

How does the program work?

The British Patient Capital fund operates as a commercial subsidiary of the British Business Bank, focusing on providing long-term financing to innovative and high-growth potential businesses in the UK. The fund operates three main programs:

1. Core Funds and Co-investment

This program focuses on venture and venture growth opportunities within the UK, aiming to establish long-term partnerships with top-tier fund managers and invest directly in promising later-stage UK companies through a co-investment strategy. The organization prioritizes venture growth funds but also invests in early-stage funds to create a pipeline for later-stage investments. Investments are made on a commercial basis, with a requirement for funds to have a strong management team and a proven track record. While sector-agnostic, British Patient Capital favors investments in areas where the UK excels, such as life sciences, deep technology, and financial services, and runs a £200m Life Sciences Investment Programme specifically for this sector. The co-investment strategy is crucial for increasing funding round sizes for later-stage UK companies, aiming to support the growth of homegrown high-growth companies. Co-investments are made with existing fund managers to efficiently increase exposure to the most promising companies, enhancing potential returns. However, the core co-investment program is limited to companies already within the portfolio. R&D intensive UK businesses seeking direct investment are directed to the Future Fund: Breakthrough.

2. Life Sciences Investment

The Life Sciences Investment Programme (LSIP) is a strategic £200m initiative by British Patient Capital aimed at bridging the growth equity finance gap encountered by promising UK life sciences companies. With an expectation to leverage an additional £400m in private investment, LSIP focuses on making cornerstone investments of £50m to £100m in later-stage life sciences venture growth funds that have a pronounced UK orientation. The program is characterized by its dedicated focus on the life sciences sector, support for funds that provide later-stage capital, the requirement for a UK presence within the investment team, a minimum target fund size of £250m, and a primary focus on financing UK-based companies.

3. Future Fund: Breakthrough

Future Fund: Breakthrough is a £425m initiative aimed at fostering the growth of high-growth, innovative UK firms through co-investment strategies. This UK-wide program specifically targets growth-stage, R&D-intensive companies within breakthrough technology sectors, offering equity co-investments alongside private sector investors. The program stipulates a minimum investment round size of £20m, contributing no more than 30% of any investment round. Distinct from the earlier Future Fund, which offered convertible loans to a wide array of innovative companies during the Covid-19 pandemic, Future Fund: Breakthrough focuses on companies engaged in R&D, requiring them to be UK-based with significant operations in the UK, have previously raised at least £5m, and the application for funding must be initiated by a sponsor investor.

What is the overall cost?

The British Patient Capital fund was established with £2.5 billion from the UK government. 

How was it implemented?

The British Patient Capital fund was launched by the British Business Bank in June 2018 in response to the Patient Capital Review which was a was a year-long examination led by the Treasury to address the challenges faced by startups and scale-ups in accessing long-term finance, also known as patient capital. The review identified that while the UK is a fertile ground for innovation, the lack of access to patient capital was preventing many UK companies from scaling up to their full commercial potential. This situation was seen as a limiting factor in the growth of young innovative firms, affecting their ability to mature domestically and impacting the country's productivity negatively. The review underscored the patient capital gap as a significant barrier to the growth of such firms, with the root causes being attributed to low historical returns on venture capital investment, causing institutional investors to be cautious and lack the expertise, access, and scale required to capture attractive returns on investments in innovation. 

What impact has been measured?

As of March 2023, the fund has supported 1,190 innovative high-growth companies as part of its underlying portfolio and it has commitment over £1.9 billion in funding. Additionally, they can demonstrate that they have secured a total of £487 million gains on investment portfolio since inception. However, no detailed assessments have yet been made on the funds wider impact on the entrepreneurial ecosystem. 

What lessons can be learned?

As well as the British Patient Capital Fund, several other initiatives were created by the UK government in response to the Patient Capital review, including the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT).

More broadly the review offers several lessons for policymakers:

  1. Addressing the Funding Gap: There's a critical need to address the funding gap faced by scale-up businesses, particularly those requiring more than £5m in equity investment. This gap hinders the growth of potentially world-leading companies.
  2. Geographical Disparities: The concentration of capital in certain regions, notably London and the South East, highlights the importance of ensuring access to finance across the entire country. This would support a more balanced economic growth and innovation landscape.
  3. The Role of Government: The government can play a pivotal role in catalyzing the patient capital market through both direct investment and regulatory changes. Initiatives like the British Patient Capital fund demonstrate how public funds can leverage private investment.
  4. Importance of Institutional Investment: Unlocking institutional and retail investors’ capital is crucial for providing the scale of funding required by high-growth firms. There's a need for mechanisms that encourage these entities to invest more in long-term, high-risk ventures.
  5. Incentives and Regulations: Adjusting incentives, such as those provided by the EIS and VCT schemes, and considering regulatory changes can significantly impact the availability of patient capital. These adjustments must be carefully designed to stimulate investment without unintended consequences.
  6. Diverse Financing Vehicles: The development of new and diverse financing vehicles, such as the Patient Capital Investment Vehicle, can provide tailored funding solutions for different stages of business growth, addressing specific market failures.

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom