London Co-Investment Fund (LCIF)

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The London Co-Investment Fund (LCIF) is a public-private venture capital fund that co-invests alongside private investors to support early-stage technology, science, and digital startups in London, aiming to bridge seed funding gaps and sti
What are the main aims and objectives?

The LCIF aims to address the historic equity funding gap for London’s early-stage startups, particularly in technology-driven sectors, by providing co-investment alongside private sector investors. Its objectives include accelerating the growth of London-based startups, leveraging public funds to attract private investment, creating and safeguarding high-quality jobs, supporting a diverse and innovative startup ecosystem, strengthening investor capacity, and generating sustainable financial returns for reinvestment. The fund seeks to catalyze the commercialization of research and innovation, enhance London’s competitiveness as a global tech hub, and promote inclusive entrepreneurial growth.

How does the program work?

LCIF operates on a co-investment model, where the fund invests only alongside a pre-approved list of private lead investors such as venture capital firms and angel investors. Startups must secure initial private sector investment typically ranging from £250,000 to £1 million to qualify. The public fund then matches this private investment, amplifying the financial support available to early-stage ventures. This approach ensures public capital is deployed efficiently, following commercial due diligence by experienced private investors, and mitigates risk through shared investment.

The fund focuses on startups headquartered in London, especially in science, technology, and digital sectors with high growth potential. Investments support companies at seed and early-growth stages, a category traditionally underserved by institutional funding.

Managed by Funding London, the LCIF involves a rigorous vetting and approval process, including assessment committees and ongoing portfolio monitoring. As of 2019, the fund had committed approximately £23 million in public funds alongside over £60 million matched from private investors, supporting over 150 companies. Proceeds from exited investments are recycled to fund new startups, establishing a self-sustaining cycle of support.

LCIF also emphasizes inclusive growth by encouraging investments in diverse founders and sectors, and by partnering with a broad array of venture firms and angel networks to broaden its reach. The fund complements wider London and UK innovation and entrepreneurship strategies by addressing critical capital constraints for emergent high-potential ventures.

What is the overall cost?

The LCIF initially received a £25 million public capital injection from the Greater London Authority via the London Economic Action Partnership (LEAP), funded through the UK Government’s Growing Places Fund in 2014. This public capital has been matched several times over by private investors to leverage total commitments up to approximately £85 million.

How was it implemented?

LCIF was conceived in response to analysis identifying a “seed funding gap” for London startups, particularly within technology and science sectors. In 2014, the Mayor’s office secured £25 million of public funds under the Growing Places Fund. Funding London, alongside Capital Enterprise, designed LCIF as a limited partnership model blending public and private capital, carefully structured to comply with state aid regulations.

Day-to-day management of the fund was delegated to Funding London, with an investment committee composed of accredited private investors who source and lead investments. The fund partnered with established venture capital firms and angel networks to leverage their deal flow, due diligence expertise, and market knowledge.

The LCIF’s governance model aligns public funding with market discipline by requiring private investment leadership on all deals, ensuring commercial viability. From 2014 to 2019, the fund methodically invested across 150+ startups, deepening its institutional knowledge and expanding its industry connections.

Over time, Governance London and LCIF evolved alongside London’s broader entrepreneurship ecosystem, increasingly integrating with complementary support programs, networking events, and accelerator initiatives led by the Mayor’s office. Recent institutional changes reflect Funding London’s merger with London Treasury, aiming to streamline SME investment functions under a single umbrella for greater impact.

What impact has been measured?

LCIF has supported the development of London's innovation economy. As of 2024, Funding London reports that LCIF has backed 162 startups, with partner co-investment bringing total capital deployed to approximately £97.9 million.

Job creation represents a significant outcome: LCIF investee companies have created over 5,131 jobs since initial investment.

What lessons can be learned?

What Lessons and Limitations Can Be Learned from LCIF?

  • The co-investment model effectively leverages limited public capital to mobilize significantly larger private sector investment, enabling broader market participation.​
  • Recycling returns into subsequent funds helps create a sustainable investment cycle favoring long-term ecosystem development.​
  • The fund’s focus on venture capital-accredited lead investors ensures rigorous deal vetting but may exclude under-networked founders lacking access to institutional investors.​
  • Limited public capital (£25 million initially) restricts ultimate fund scale and market impact despite leveraging.​
  • Returns and recycling depend on exit timing, which is inherently unpredictable, influencing fund replenishment and continuity.​
  • The fund requires ongoing adaptation to London’s evolving VC landscape and regulatory environment, including state aid compatibility.​
  • Job creation metrics are strong, but ensuring diversity and inclusion across portfolio companies remains an ongoing focus area.
Notes + Additional Context

About Equity Investment:

Equity is an important type of funding mechanism for early-stage companies which are potentially high-growth but also high risk, and so less attractive to banks and other loan providers. One advantage of equity financing is that it spreads the risk: if the business fails, the equity investor must accept their loss. However, many entrepreneurs are reluctant to give up equity at it typically involves some loss of control of the business. 

Equity finance is available through a number of sources, including business angels, venture capitalists (VCs), stock markets and crowdfunding platforms. Importantly, equity investors need confidence in the ability to exit their investment eventually – that is, to sell their stake to someone else in exchange for cash. Properly functioning primary and secondary markets therefore encourage angel and VC investment.

Historically, there has been a significant gap between European and US VC funds, with total European investment comprising a fraction of the US, as well as underperforming in terms of financial returns (though this gap is closing). There is also evidence of a relationship between fund size and performance, with some of the lower performance of European funds being blamed on their smaller size. In addition, there is a common trend of funds moving to later-stage investment, thus creating recurrent gaps in early-stage investment.

Because of this, public policy typically focuses on incentivising private sector investment, especially at the early stages, as well as increasing fund size. Government agencies have thus become the primary source of new European venture capital in the past decade.

Read more about these types of policy instruments in Nesta's "Digital Entrepreneurship: An ‘Idea Bank’ for Local Policymakers."

CURATED BY

Siddharth Bannerjee

Researcher, Digital Startups
Nesta
United Kingdom