Frequently asked questions
Please see the CfEL website for answers to questions about the Request for Proposals
What is the UK Innovation Fund?
The UK Innovation Investment Fund has been established to drive economic growth and create highly skilled jobs by investing in businesses where there are significant global opportunities.
The UK Innovation Investment Fund will operate on a Fund of Funds structure which means it will not invest directly in companies, but rather invest in a small number of specialist, private sector technology funds that have the expertise and track record to invest directly in technology businesses. By increasing the supply of venture capital to these funds the UKIIF will drive investment in high growth businesses, start-ups and spin-outs which are finding it difficult to raise finance in the current economic climate.
This is a commercial Fund of Funds which will target technology businesses in the key areas where Britain has competitive advantages such as: life sciences, low carbon, digital technology and advanced manufacturing.
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Why is it being established?
Venture Capital is important to the UK and global economy…
There are about 1,093 venture capital backed technology companies in the UK, employing over 40,000 highly skilled people.
Economic evidence tells us that venture capital backed companies significantly out perform other companies in terms of their ability to create wealth and generate the spillover benefits (e.g. increased productivity, GVA, skills) that are the objective of innovation policy:
- UK employment 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; and
- Value of exports from the UK increased by 14% compared with 4% national average.
A recent survey by the British Venture Capital Association by Populus suggests that the current global economic conditions are having a severe effect on existing technology companies, with respondents suggesting that 88% of portfolio companies may not survive the next 12-18 months.
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What are the UK Innovation Fund’s objectives?
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; and,
- Provide a cost effective solution that provides a market return to private sector investors and delivers a return to HM Government.
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How will the Fund of Funds operate?
The UKIIF will operate as a Fund of Funds, with a cornerstone investment of £150m from HM Government, and with the ambition of increasing the value of the Fund to £1 billion. HMG investment will be on a pari passu (equal) basis with that of other investors. This money will be invested in a small number of technology venture capital funds, operated by experienced and successful venture capital fund managers, with the expectation that the majority of the money would be invested in sectors such as life sciences, low carbon and clean technologies, ICT and digital and advanced manufacturing. The underlying funds will invest in companies that require equity finance at all stages of development, from seed and early stage funding through to later stage financing.
The Fund will operate 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.
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What will the Fund of Funds invest in?
The fund of funds will invest in a small number of specialist technology funds that have the expertise and track record to invest directly in companies.
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When will the first closing be?
The Hermes fund closed in January 2010 and the EIF fund closed in February 2010. We expect final closings to be 12-18 months after the first closings.
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When will funding reach technology businesses?
Money is already reaching technology companies via the underlying funds’ investments. The timing of future investments will depend on the funds of funds completing their due diligence and the underlying technology funds making investments.
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How can my technology business access funding?
All queries regarding investments should be directed to:
Cleantech related questions - Delany Brown at Hermes Private Equity: d.brown@hermes.co.uk
General technology and life sciences (but not cleantech) - Will Vizard at EIF: w.vizard@eif.org
It is worth noting that as venture capital fund of funds, they invest into specialist technology funds. It is these funds that will invest in companies with high-growth potential. UKIIF is not a pot of money to which people can apply for grant-type funding. Companies can pitch, but the specialist technology funds managers will make all investment decisions.
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Will the Fund of Funds be able to invest in closed funds?
Yes, the Fund of Funds will be able to invest in closed funds.
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Will the fund invest directly in companies or into venture capital funds?
The Fund will operate 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. The Fund will only invest in those companies that have strong survival and growth prospects.
Given the asset allocation, are you going for equal allocation (ie are you looking to invest the same amount of money in each sector)?
No. The only restriction is that we will invest at least £25m in life sciences and £25m in clean tech / low carbon.
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Could you explain how the Fund will interact with other providers of Government venture capital such as RDAs, Scottish Enterprise etc?
The Fund is complementary to existing Government VC activities, but as it is Fund of Funds it will not interact directly with other public sector interventions.
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Are any agreements in place for the minimum/ maximum investments to be made by the fund - or into the fund? Is there a minimum investment from non-governmental investors? Is there a limit to the amount of investment that will be accepted from non governmental investors?
No, there are no agreements in place for the minimum/maximum investments to be made by or into the fund. These and similar investment decisions will be the responsibility of the Fund of Funds manager.
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What is the lifespan of the fund?
UKIIF is a 12-15 year fund.
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Are there restrictions on which funds UKIIF can invest in?
There are no restrictions on UKIIF investments in principle. The intention is for the Fund of Funds manager to invest across the range of stages and across a wide range of technologies.
There is no restriction on the spread of spending across technology sectors, with the exception of £25million minimum investment in each of low carbon and life sciences to ensure these key growth sectors are represented. The Government’s investment in these sectors has been provided by DECC and DH, reflecting their confidence in the fund.
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Will you invest more in funds that invest in later stage companies than early stage?
This will be a commercial decision for the Fund of Funds manager.
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Will you limit the amount of overseas investment in the fund or sources of overseas investment (sovereign wealth funds, high net worths, family offices)?
No. The fund will be open to investment from both UK and international sources.
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Can people invest directly in the fund, for example successful entrepreneurs wanting to support other entrepreneurs?
The Fund of Funds Manager will have the flexibility to seek investment from all potential sources of investment both in the UK and overseas.
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