UK pension fund investment in later stage venture capital (VC) is essential if the country is to achieve its growth ambitions, the Deputy Chief Investment Officer at British Business Bank (BBB) has said.
Speaking exclusively to IAM, Ian Connatty, who has recently been appointed Managing Partner at the BBB’s British Growth Partnership with a mission to secure private capital for later stage VC projects, retirement funds will need contribute investment to close funding gaps.
“The UK is really good at startups, but it is this scale up piece where we need to catalyse private investment. And it’s not just funding for the scale ups. We need the funding to get start-ups through to become globally significant companies,” Connatty says.
According to figures published by the British Venture Capital Association (BVCA) last November, approximately GBP8 billion of capital was invested into UK venture-backed businesses in 2023.
The UK VC market is the third largest in the world, ranking behind only the US and China, and is significantly larger than other European markets.
However, early-stage companies make up around 85 per cent of all venture backed companies, which creates challenges in scaling up businesses and could negatively impact the UK’s long-term competitiveness.
The government announced the creation of the British Growth Partnership at the International Investment Summit in October 2024 and while it is still waiting regulatory approval, the government expects the division to “raise hundreds of millions of pounds” from UK pension funds and other institutional investors.
Connatty is optimistic that pension funds are willing and able to support the initiative by providing capital to later stage VC.
“I see a real willingness from pension funds to engage in conversations about VC. Do I think the message landing? Yes, but this stuff takes time. And we also need to find a way to [invest in later stage VC] that’s congruent with trustees’ very real fiduciary duty duties.”
He continues: “Our mission is all about prosperity. So, we’ve set up our programme to deliver returns and meet that objective. But pension funds all have slightly different objectives. We need to think about that in our approach.”
Connatty warns that unless UK investors support domestic VC, there is a risk companies will move overseas when they reach critical mass, in turn taking jobs and prosperity with them.
“Where you do see large slugs of capital coming in to support kind [VC] businesses, a lot of that’s coming from non-UK investors. So the gains are going overseas, the expertise of how you fund that VC is not domestic and, crucially, when it comes discussions about where’s the long term home for this business, if you don’t have a solid bench of domestic investors around the table, the data shows that the business might not end up in the UK in the long term.”
