A UK-wide investment programme has launched to deliver £375m of government funding to research and development (R&D)-intensive firms operating in “breakthrough” technology sectors.
The Future Fund: Breakthrough programme, which opened for investor applications on 20 July 2021, was originally announced by the chancellor of the exchequer during the Budget in March, and will be delivered by British Patient Capital – a commercial subsidiary of the UK government’s economic development bank, British Business Bank.
The fund is designed to target later stage R&D-intensive firms in breakthrough technology sectors, including quantum computing, cleantech, and life sciences, to fuel their continued growth.
Because of their potential to have a significant economic impact, the growth of these innovative companies is seen as critical by the government to the UK’s future prosperity and economic recovery.
British Patient Capital will aim, over time, to construct a portfolio of growth-stage breakthrough tech companies, and will make equity co-investments alongside private sector investors.
“With many world-class universities and a strong track record in science and research, the UK is fertile ground for creating high-growth companies based on cutting edge technologies,” said Judith Hartley, CEO, British Patient Capital.
“Through the commercialisation of R&D, these transformative companies will help to accelerate the deployment of innovative breakthrough technologies that can transform major industries, develop new medicines, support the transition to a net zero economy and strengthen the UK’s position as a science superpower.
“Future Fund: Breakthrough will enable these R&D intensive companies to raise the patient capital they need to fuel the later stages of their growth, and in doing so, help ensure the UK is a world leader in the industries of the future.”
To be eligible for the scheme, companies must be raising a minimum total investment round size of £30m, with the fund making a maximum contribution of 30% to each round – meaning the minimum amount of private sector funding needed is £21m.
The company must also have raised at least £5m of equity investment from third-party investors in previous funding rounds. It must also be UK-based and have significant operations in the country.
In terms of its activity, the company seeking investment must have been spending an average of at least 10% of its total operational cost base on R&D over the past three years, or at least 15% in one of the past three years.
It must also intend for 20% or more employees to be carrying out research for at least three years from the date of investment, in roles that require a relevant master’s degree or higher.
However, as an investor-led programme, funding applications can only be made by a qualifying lead investor and not by companies themselves.
“As the potential of technologies like AI, machine learning and quantum computing become fully realised and applied at scale, R&D funding is more important than ever to turn the UK’s new breed of innovators into game-changing market leaders,” said Gerard Grech, chief executive of entrepreneurial network Tech Nation.
“Funds focused specifically on R&D intensive companies aligned to the UK’s strategic sectors, including net zero companies, will help to tackle some of the biggest challenges facing society today. It will open up new job opportunities, drive economic growth, and cement UK tech as world-leading.”
The scheme is separate and different to the now closed Future Fund that provided convertible loans of up to £5m to a wide variety of innovative UK companies, to address the funding challenges caused by Covid-19.
In May 2021, the Confederation of British Industry (CBI) published a report calling for an inclusive and innovative economy, which it said could be achieved in part through increasing R&D investment to match the Organisation for Economic Co-operation and Development’s (OECD) levels.
By 2030, the report said, the UK will have a “distinctive advantage” through its focus on innovation, “including in new technologies, where we will become a natural global hub for R&D”.
The CBI has on several previous occasions called on the government to increase its investment in R&D.
Previous investment in ‘impact startups’
In October 2020, research by Tech Nation and market intelligence firm Dealroom showed that investment in UK technology startups addressing one or more of the United Nations’ Sustainable Development Goals has increased nearly 10-fold in six years.
The data further revealed that these firms – also known as “impact startups” – raised €1.4bn up to that point in 2020, with cleantech and climate tech companies raising most of the capital.
Impact startups now account for over 15% of all European venture capital (VC) investment – double the global average and three times higher than a decade ago, with European firms receiving a total of €6bn in 2019 alone.
Most of this investment in the wider European context has gone to climate technology startups, including those developing electric vehicles, which have attracted €9.8bn of VC investment in the past five years.
Separate research by Tech Nation from early September 2020 also revealed that, within Europe, UK net zero startups were leading the way in investment, receiving £336m in 2019, a 28% increase on the previous year. By contrast, French and German net-zero firms secured £216m and £283m, respectively.