BVCA: “UK scale-ups increasingly relying on overseas investors to grow”
- Proportion of foreign investment in larger venture capital deals has increased since 2019
- To fix this domestic funding gap, the UK needs to create the right framework for larger VC funds
- Only 3% of pension fund investment in British private capital comes from UK pension funds
- Pensions and private capital industry will publish recommendations for increasing investment in fast growing private businesses in September
UK scale-up businesses are increasingly relying on overseas investment to grow and expand operations, according to data published by the British Private Equity and Venture Capital Association (BVCA) and Beauhurst.
New data from Beauhurst reveals that a shortage of late stage and follow-on funding is causing the most innovative companies in tech, life sciences and AI to seek support overseas, widening the ‘scale-up gap’ in investments.
Beauhurst found that foreign investment in UK deals makes up an increasing share of deal value since 2019:
- In 2023, 94.3% of deal value over £50m included foreign investors. This compares to 89.7% for the 2019-2023 average.
- The rise for £20m-£50m growth deals was larger:
– In 2023, every life science deal valued over £20m involved foreign investment.
– In 2023 across all sectors, 87.1% of £20m-50m deals included foreign investors compared to 80.1% for 2019-2023.
Businesses seeking this level of investment have typically demonstrated their readiness through earlier funding rounds. For life science companies, this often means their technology is ready to scale and capable of addressing healthcare issues or challenges in the workplace.
The data indicates that the increasing importance of foreign investment is due to the UK not having sufficient funds of scale to invest in deals over £20m. To fix this domestic funding gap, the UK needs to create the right framework for larger VC funds that can enable more businesses to achieve rapid growth without relying on overseas investment. An important part of the solution is to unlock greater levels of domestic institutional investment such as UK DC pension schemes, through initiatives like the British Business Bank’s Growth Fund or a UK TIBI scheme.
This analysis highlights the importance of the government’s pensions review, announced on 7 August by Chancellor Rachel Reeves, which calls on UK pension schemes to invest more in the UK economy.
Data published in the BVCA’s latest Report on Investment Activity, shows that although pension funds were the main investors in UK-managed private capital funds, providing 28% (£16.5bn) of the total raised, only 3% of this sum came from domestic pension funds. This means overseas pensioners are the overwhelming beneficiaries when scale-ups succeed.
The BVCA is backing efforts to increase investment by UK pension funds in private capital in order to support the growth ambition of British scale-ups and generate stronger returns for UK pension savers. Next month, a cross-industry panel of experts will publish new recommendations for increasing investment by UK pensions funds in fast growing private businesses.
The Pensions & Private Capital Expert Panel convened by the BVCA in partnership with the ABI and PLSA oversees, monitors and reports on the progress in delivering the commitments set out in the Investment Compact for Venture Capital and Growth Equity. Launched in October 2023, the Investment Compact has been signed by over 110 venture capital and growth equity firms who are committed to developing long-term, constructive working relationships with UK pension investors. Building on the Mansion House Compact initiated in July 2023, in which 11 of the UK’s largest DC pension providers committed to the ambition of allocating at least 5% of their default funds to unlisted equities by 2030.
On 11 September, the Expert Panel will launch a new report outlining how to address key structural and technical issues holding back greater levels of investment by the UK pensions industry into fast growing private businesses. This is expected to include recommendations on the accessibility of private capital on platforms, rules on liquidity, and the role of Government incentives.
Michael Moore, Chief Executive of the BVCA, said:
“We must intensify efforts to close the scale-up gap. Doing so will hugely benefit the economy and support the next generation of the UK’s most innovative businesses. Currently, pensioners from the US, Canada or Australia are more likely to benefit from investment in fast growing private businesses than British pension savers.
“Part of the solution is getting more UK pension funds investing in homegrown companies, which the Mansion House reforms and Investment Compact are driving forward.”
Henry Whorwood at Beauhurst, said:
“Talks of a funding gap never go away. What's clear from our analysis is that there is certainly a domestic funding gap. Whilst there is definitely something to be celebrated in companies raising from foreign funds, we should also feel a bit disappointed that domestic investors are disenfranchised from the upside.”
Ben Wilkinson, Chief Financial Officer, Molten Ventures and member of the Pensions & Private Capital Expert Panel said:
“The growth of UK scale-ups and start-ups are vital for building the economy. Entrepreneurs running the nation’s most groundbreaking businesses need more support if the UK wants them to remain at home, continuing to impact local economies.
“The Expert Panel has put in an immense amount of work in the past year to identify solutions that must be put in place within the pensions and private capital industries to attain the funding these businesses need, as well as the returns that UK savers should benefit from.”
Media contacts
James Gribben, BVCA: [email protected]
Notes to editors
The BVCA's Report on Investment Activity 2023 is available to read here.
Beauhurst analysed the investors and funds involved in every primary equity investment into a private UK company between 2019 and 2023. Beauhurst's data on equity investment is collated from a range of sources including press releases, investor disclosures, and Companies House.
About Beauhurst
Beauhurst was founded by Toby Austin and Stephen Bence, who initially conceived the idea while working as consultants, tasked with identifying potential investors for UK companies. Their frustration with the lack of comprehensive, structured data and advanced tools in this space led them to create Beauhurst.
The Beauhurst platform is built around high-quality, manually curated data, offering detailed insights into the UK's high-growth economy. The company has grown to over 100 employees, with offices in London and Nottingham, and continues to innovate and expand its platform.
About the British Private Equity & Venture Capital Association
The BVCA, as the representative body for private equity and venture capital, connects institutional investors, fund managers, companies, advisers and service providers together, with our membership currently comprising more than 600 businesses from across the private capital ecosystem. This includes more than 250 PE and VC firms, 100 institutional investors and 200 professional services firms.
Private capital drives growth – providing the funding, expertise and long-term view that enables companies to innovate and flourish. Our mission is to advocate the transformative nature of the private equity and venture capital community.
Report on Investment Activity data sources
The BVCA collects data from members on an annual basis covering fundraising, investments and divestments in each calendar year. All BVCA members who hold General Partner membership and are primarily based in the UK are required to complete the investment activity survey. To be included in the current year survey, a firm had to be a full GP member of the BVCA as at 1 January 2024. In 2022, the BVCA took the decision to widen the scope of captured activity to monitor wider market trends more accurately. The activity dataset now includes the following categories of data:
- Activity data provided by private equity and venture capital BVCA member firms.
- Activity data provided by non-member private equity and venture capital firms to other national associations that are part of the European Data Cooperative (‘EDC’).
- Activity data of private equity and venture capital firms that was obtained from publicly available sources.
The BVCA together with other national associations have supplemented data provided by members and used estimates where appropriate.
