UK government to seed £150m venture vehicle

A manager has yet to be appointed for the fund of funds, which will seek to mobilise private capital into high tech businesses.

The UK government yesterday unveiled plans for state-backed fund of funds to encourage investment in venture capital. Government departments will between them invest £150 million (€176 million; $248 million) into a fund of funds, which will also seek to raise private capital.

It is hoped that the public sector money could mobilise as much as £1 billion of venture capital fund investment over the next 10 years, according to a statement from the Department of Business Innovation and Skills.

The government will appoint an existing venture capital manager to run the fund of funds, but as yet no decision has been made. A government spokesman said a “free and open” appointment process would be concluded “as soon as possible”.

The UK Innovation Investment Fund will invest in venture capital funds focusing on digital and life sciences, clean technology and advanced manufacturing.

British Prime Minister Gordon Brown described venture capital as being the “lifeblood of innovation” in a statement.

Government intervention in the venture capital market is not a new phenomenon. Listed private equity firm 3i started life as a publicly-backed initiative in 1945 to provide long-term funding for small- and medium-sized enterprises. A government working group – led by former chairman of 3i Chris Rowlands – is currently looking into whether a similar institution is needed for UK businesses in today’s financial crisis.

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 SMEs.

In related news, the government of Canada earlier this month unveiled plans to boost domestic venture capital investment. As part of a C$450 million (€276 million; $389 million) boost for the Development Bank of Canada, C$90 million will be committed to private venture capital funds over the next three years.