Fund of funds to pitch for £1bn venture initiative

The UK government is asking fund of funds managers to step forward to manage a state-backed venture capital fund.

The UK government has invited fund of funds managers to put themselves forward to manage what it hopes will be a £1 billion (€1.2 billion; $1.7 billion) pool of venture capital.

As part of a government initiative to encourage investment in high tech early stage companies, the Department for Business, Innovation and Skills has committed £150 million to the fund of funds – named the UK Innovation Investment Fund (UK IIF). It is hoped that the selected fund manager will leverage this with third party capital to take the figure to £1 billion.

Fund managers are being asked to target sectors such as life sciences, low carbon, digital and advanced manufacturing with what the UK government hopes will be the largest technology fund in Europe.

However, there is some concern over whether a fund of funds manager would be able to raise the additional £850 million in third-party commitments. “Raising £1 billion is a relatively steep task. If they raise even half the total amount it will be a significant achievement,” said Patrick Reeve, managing partner of UK venture capital firm Albion Ventures, in an interview.

“That said, while £150 million is not much, it is a lot better than nothing,” he added.

Fund of funds managers now have until the end of August to register their interest in the mandate, and until 18 September to submit a proposal, which must include details such as where the third party capital will come from, how the fund will provide both seed and later stage funding and when a first close can be reached. Final selection and appointment of the manager is due in December. 

A seminar for prospective managers of the fund is being held in the City of London on Thursday to outline the government’s objectives.

There are a number of other government-backed venture capital initiatives operating in the UK, including the Capital for Enterprise fund, launched in January. Under this initiative Maven Capital Partners (formerly known as Aberdeen Asset Managers) and Octopus Investments have been mandated to invest £30 million each in small- and medium-sized businesses.

Elsewhere in the world, governments have implemented similar schemes to direct cash to early stage business amid the downturn. In June, the government of Canada unveiled plans to boost domestic venture capital investment. As part of a C$450 million (€293 million; $422 million) boost for the Development Bank of Canada, C$90 million will be committed to private venture capital funds over the next three years.