Catherine Lewis la Torre, CEO of British Patient Capital
“If you’re a company in the US you go through the same number of funding rounds as your counterpart in the UK but you will raise X times more,” says Catherine Lewis la Torre, CEO of British Patient Capital.
That yawning gap between the funding available to British and American startups and scale-ups was just one of the problems that British Patient Capital was established to address at its launch in 2018. This week, the organization published an independent evaluation of its progress so far and the figures suggest that a strategy of providing public money to leverage even larger sums of private sector cash is having an a positive impact on the U.K.’s innovation ecosystem. I spoke to Lewis La Torre to find out more.
British Patient Capital – an arm of the British Business Bank – was launched following a government review of the money available to support technology-driven companies. The Treasury found that despite a thriving startup communitty, there was a shortfall of long-term, patient finance for those businesses that needed both capital and time to bring their offers to market.
With £2.5 billion at its disposal, the BPC aimed to act as a catalyst. As Lewis la Torre explains, the organization works alongside VCs to provide growth finance at the B, C and D stages. “They (the VCs) can struggle to raise funds from institutions,” she says. “We come in early with a check and act as a cornerstone investor. So the VCs can say to other investors, look we have £50 million already booked in.”
BPC already invested £1.3 billion from its pot, but the total commitment, which includes funding from other investors, is £10.7 billion.
Additional Jobs
So, what has all this meant for scaleups? Well, according to the independent evaluation, companies that have benefitted from BPC-backed investments have created 4,600 to 5,000 additional jobs and also grown turnover by an average of between £4.7 and £5.00 million a year.
In addition, the pre-money valuations of companies in the portfolio are on average £60 million higher than they otherwise would have been.
The question is, of course, would the companies in question have created those jobs, increased turnover and enjoyed their current valuations without the presence of BPC in the market? We can’t know that for certain but BPC Senior Manager Dan van der Schans says the evaluation – carried out by research and analysis company, SQW – involved setting up a counterfactual group of similar ventures to make the comparisons. In addition, a poll of underlying portfolio companies found 25 percent saying growth would not have been achieved without the involvement of BPC while 50 percent said they would have grown more slowly.
The Science Superpower Agenda
I ask Lewis la Torre how her organization fits into the government’s wider and much-touted ambition of turning Britain into a “science superpower.”
“People tend to use that phrase with a smile on their faces,” says Lewis la Torre, acknowledging the skepticism that exists in some quarters. “But the U.K. is super in some sectors, such as life sciences, AI and quantum. We want to make sure those companies get the finance they need.”
And as things stand, around one-tenth of BPC-supported companies are university spin-outs, much higher than the 2.0 percent average across all equity-backed businesses, BPC says. A quarter of them have succeeded in getting to the “growth” stage as identified by analyst Beauhurst.
But can U.K. companies compete against better-funded rivals? This brings us back to the funding gap between British and American startups and scaleups. The ability of U.S.-based businesses to raise more capital, arguably makes it easier for them to turn cutting-edge technology into commercially viable products. Is there any way to close that gap? Lewis la Torre thinks that progress is being made and that BPC is playing a part. She cites the fact that her organization’s £1.3 billion investment to date has helped facilitate total funding of £10.7 billion.
“That’s a good start but it is by no means job done,” she says. And as she acknowledges, the U.K. is not alone in trying to ensure their tech champions can compete with counterparts in North America. “We are narrowing the gap but so are other countries,” she says.
One thing that would help is to have more institutional cash – for instance, from pension funds – flowing into VC funds. “It is important to have more institutional capital,” says Lewis la Torre. “There is some but at the moment it’s largely from the U.S. But the U.K. institutions are moving. There is scope for more.
BPC will undergo two more independent evaluations before its ten-year lifespan comes to an end. I ask how it will be judged. “We want to produce a commercial return,” says Lewis la Torre. This, she says, will demonstrate to commercial investors that patient capital strategies can make money.
