Innovation UK > News > Innovation UK Vol6-1 > Funding the future

Forming part of the government?s strategy for Building Britain?s Future, the UK Innovation Investment Fund was set up in June 2009 to invest in technology-based businesses with high-growth potential. The investment fund focuses on investing in growing small businesses, start-ups and spin-outs, in digital and life sciences, clean technology and advanced manufacturing.

The Department for Business, Innovation and Skills, along with the Department of Energy and Climate Change and the Department of Health, will invest £150 million alongside private-sector investment on an equal basis known as pari-passu. It is the government?s belief that this could leverage enough private investment to build an investment fund of up to £1 billion over the next 10 years. Announcing the investment fund, Prime Minister Gordon Brown said: ?This investment fund will help build Britain?s future by investing in key sectors. It will provide crucial support for our most promising start-ups and existing small companies just when they need it most. Venture capital finance is the lifeblood of innovation and crucial to ensuring the commercialisation of the discoveries coming out of our research base. The investment fund will boost future UK competitiveness.?

The UK Innovation Investment Fund will be one of the largest ever technology funds in Europe. Lord Mandelson, Secretary of State for Business, said: ?In our New Industry New Jobs strategy we identified access to venture capital as one of the critical factors in developing innovative new companies in Britain. The UK Innovation Investment Fund will be a shot in the arm for the British venture capital industry. It is also a challenge to UK venture capitalists to follow the government?s lead in backing British entrepreneurs in building exciting new companies, investing in new technologies and creating jobs.?

The UK Innovation Investment Fund operates on a Fund of Funds structure, which means it will not invest directly in companies, but rather invest in a small number of specialist technology funds that have the expertise and track record to invest directly in companies. Following a successful competitive tendering exercise, Hermes Private Equity and the European Investment Fund (EIF) were unveiled by the Chancellor as Fund of Funds Managers in December 2009. At first closing, the two Fund of Funds will have a combined total of £325 million to invest. This includes the cornerstone investment from UK Government of £150 million in total.

Hermes will manage a Fund of Funds worth up to £125 million at first closing to invest in low-carbon technologies. Hermes is investing up to £75 million into the investment fund, alongside an investment of £50 million from the Government. EIF will manage a Fund of Funds worth up to £200 million at first closing to invest in a range of technologies such as: life sciences, digital technology and advanced manufacturing. EIF is investing up to £100 million into the investment fund alongside an investment of £100 million from the government. So far, £200 million from the UK Innovation Investment Fund (UKIIF) has been earmarked to benefit life sciences, digital and advanced manufacturing businesses (the Future Technologies Fund), and £125 million is to be invested in low-carbon and clean-tech sectors (the Environmental Investment Fund), bringing the total UKIIF investment to £325 million.

Science and Innovation Minister Lord Drayson said: ?Despite a tough market, the UK Innovation Investment Fund goes from strength to strength. Private funds have matched the government?s investment and money can now flow into promising technology companies. This is just the boost these companies need as the economy returns to growth.? The government appointed Capital for Enterprise Limited (CfEL) to advise on the development of the UKIIF and to lead the process of selecting and appointing the investment fund managers. CfEL negotiated the fund with EIF as part of the government?s continuing drive to support young British businesses.

For more information, visit: www.bis.gov.uk

The UK Innovation Investment Fund has been created to:

• Drive economic growth and create jobs by investing in growing technology-based businesses, including start-ups and spin-outs, in strategically important UK sectors including digital technologies, life sciences, clean technology and advanced manufacturing;
• Safeguard the government?s record investment in the science and research base over the past decade;
• Leverage £150 - £850 million private sector investment to address the undersupply of risk capital in these sectors;
• Provide a boost to the venture capital and syndication markets in the UK at a time when they are most vulnerable and address longstanding structural issues;
• Provide a cost-effective solution that provides a market return to private sector investors and delivers a return to HM Government.

Facts and figures

• There are about 1,093 venture capital-backed technology companies in the UK employing over 40,000 highly skilled people.
• Venture capital-backed companies significantly out perform other companies.
• UK employment in venture capital-backed companies increased by 6% compared to a national average of 1%.
• Sales grew by 12% pa compared to 5% for FTSE Mid-250 companies.
• Increased R&D expenditure of 12% compared to 1% pa.
• Value of exports from the UK increased by 14% compared with 4% nationally.
• 69% of venture-backed companies introduced new products or services.
• Household names such as Google, Vodafone, e-Bay, SKYPE, Amazon, Microsoft and Apple were backed at an early stage by venture capital.