UK Innovation Investment Fund – Request for Proposals
The UK Government and Capital for Enterprise Limited issued a Request for Proposals (RFP) on 3 August 2009 to appoint a Venture Capital Fund of Funds manager(s) for the UK Innovation Investment Fund. The RFP closed at 12:00 (BST), 18th September 2009.
The RFP was a key milestone in delivering the Fund as it set out the parameters the Government had set for the fund and detailed the information expected from any prospective Fund of Fund manager(s).
The RFP asked potential Fund Managers to set out their investment strategies to target the technology companies of the future such as life sciences, low carbon, digital and advanced manufacturing. It also asked Fund Mangers how they would raise money from private sector investors.
Further information and a copy of the RFP can be found on the Capital for Enterprise Ltd (CfEL) website at http://www.capitalforenterprise.gov.uk/ukiif.
The CfEL website has answers to questions about the Request for Proposals. The FAQ section of this website answers general questions about the UKIIF.
Seminar on the UK Innovation Investment Fund
Thursday 6 August 2009
Summary of Presentations
- Jonathan Blake from SJ Berwin LLP welcomed attendees to the seminar and explained Berwin’s historical involvement in venture capital and private equity. 2009 was an important time for the revival of venture capital, as the reduced availability of debt made private equity investments a more important source of finance for technology based businesses.
- Simon Walker from BVCA set out the issues in the venture capital sector that made UKIIF an important project. He explained there were 1,100 venture capital backed technology businesses, employing around 40,000 people, that were struggling to survive the current recession, many venture capital funds that had been supporting these companies were also in need of fresh capital. BVCA believed that investing in high technology businesses was central to ensuring the UK was able to compete globally, and that UKIIF sent a strong positive signal to companies and VC funds. The Government’s corner-stoning of the Fund of Funds would stimulate investment and give a lead to investors, many of whom are reconsidering their asset allocation.
- The BVCA had recently published figures which showed that VC backed companies produced strong returns both before and after the dot.com bubble. Simon reported that experience had shown that companies formed in a recession and able to develop as the economy recovered performed very well. The BVCA welcomed the fund and would support it where possible although he was keen to stress that BVCA would have no role in appointing or managing the fund of funds manager.
- Fergus Harradence from the Department of Business, Innovation and Skills set out how Government had provided significant investment in science and innovation and in encouraging the development of technology-based companies. The current downturn had increased pressure on those reliant on equity finance, and this presented a threat to new and existing technology based companies. The Government was acting now to safeguard its record investment in the science and research base over the past decade and to demonstrate its wealth generating potential. Technology-based VC backed companies had an important role to play in this, as they tended to grow more quickly, employ more skilled people and export more than other start up companies. This was the rationale for establishing the UKIIF. UKIIF also complemented other Government strategies such as New Industry New Jobs, the Low Carbon Industrial Strategy and Building Britain’s Future, which focused on creating jobs, developing skills and increasing investment in the UK. This presented a clear rationale to intervene, but an intervention at scale was needed to create sufficient impact and leverage sufficient additional investment from the private sector. Engaging a Fund of Funds manager or Mangers to manage the fund on a commercial basis would maximise the return for both investors and the taxpayer.
- Rory Earley, Chief Executive, Capital for Enterprise Limited (CfEL) explained CfEL’s role in advising the Government on its investment in UKIIF and in appointing the Fund of Funds manager(s). CfEL was an arms length company owned by the Department for Business, Innovation and Skills. It had an independent board that, together, had some 150 years experience in managing venture capital investments and 40 years of managing funds of funds.
- CfEL had issued a Request for Proposals (RFP) on 3 August 2009 and would be seeking to appoint an experienced Fund of Funds manager with a proven track record in technology investment. The RFP was available on the CFEL website. Rory clarified that:
a. More than one Fund of Funds manager could be appointed if that represented the best range of expertise and interest;
b. Any questions in relation to the RFP should be emailed to CFEL, these would be posted anonymously with the answers on the CFEL website to ensure fairness;
c. Those intending to bid were asked to declare their interest by 28 August 09 to enable CFEL to ensure they had the resource in place to assess all proposals;
d. Bidders were asked to provide 5-10 pages plus annexes covering key criteria in the RFP including describing:
i. How the prospective manager intended to select funds that would cover the various stages of investment targeted by the UKIIF;
ii. How the range of technology sectors would be covered including the requirement that at least £25m would be invested in each of low carbon and life sciences;
iii. How much and how quickly further investment could be raised and demonstrating a realistic ability to provide match funding to £300m for a first closing; and,
iv. How the prospective manager would ensure a strong UK focus even where they might invest in pan-European underlying funds.
e. The RfP was not prescriptive as to how the various objectives would be achieved.
Q&A
- The following questions and comments were made in discussion.
Legal
UK Partnership, and Tax
The expectation was that the Fund of Funds would be a 10 year UK Limited Partnership and would be tax transparent;
Commercially confidential information
The Freedom of Information Act allows for commercially sensitive material to be kept confidential, it also has provisions for information that has been provided with an expectation of confidentiality. The RFP described how information provided would be treated and contained an expectation that it would only be used for assessment of the proposals and potentially a future evaluation of the UKIIF.
Investment
Benefit to private investors.
Government money ensured there was a scale to the fund which would bring benefits, and excellence in terms of Fund of Funds manager selection;
Raising private investment
BIS had undertaken significant work in advance to test whether matched funding from private sector was likely to be available and this was thought possible;
Closing in advance of match funding was not desirable as that could raise state aid issues which would cause delay in funding reaching the technology funds and ultimately companies;
Flooding the market
The risk of flooding the market if the fund reached its £1billion target was considered unlikely given the biggest issue was the problem in raising capital for technology companies – this was the priority;
Multi stage / multi sector
The intention was for the Fund of Funds manager(s) to invest across the range of stages including later stage deals, not just seed funds, and across a wide range of technologies.
There was no restriction on the spread of spending across technology sectors, with the exception of the £25million minimum spend in both low carbon and life sciences;
Underlying fund raising cycles
CfEL had some intelligence of which funds were currently or likely to be fundraising but it was for prospective Fund of Funds managers to propose how they would go about making their investments;
Investment in non-UK based companies
There was no stipulation on the proportion of funding that must go to UK companies but it is for bidders to propose how this would be maximised;
Encouraging investors
An international PR campaign would be run from September 2009 to raise the profile of the fund amongst potential investors.
Investment in underlying technology funds
It was for prospective Fund of Funds managers to indicate which funds they would intend to invest in. CfEL would assess bids on their merits.
Structure
Fund of Funds
A Fund of Funds structure had proved the most attractive to institutional investors as it spread the investment risk across a number of different technology fund management teams. The Fund of Funds approach also enabled the Government to support the growth of the market without distorting or competing with existing fund managers. It also helped to ensure that the Fund complemented existing public sector interventions such as Enterprise Capital Funds, RDA European Development VC Funds as well as tax measures.
Timescales
Time to first investments
This was dependent on the ability of the Fund of Funds manager(s) to quickly raise funds. It was hoped that this could be achieved by the end of 2009.
Attendees
Over 120 people attended the seminar representing Fund of Funds managers, institutional investors, VC fund managers and Trade associations.
