More money and greater transparency needed if scale-ups are to benefit from patient capital

Commenting on the announcement in the Autumn Statement that the Government will encourage private investment with £400 million from the British Business Bank to unlock £1 billion of new investment in innovative firms planning to scale up, Bivek Sharma, head of KPMG Small Business Accounting said:

“On the face of it, it’s certainly positive news that the Government has pledged £400m to be invested in tech firms that need patient capital – that is to say, time to grow before being snapped-up by larger companies and/or foreign investors.

“However, let’s put this in context; £400m is a tiny amount when looking at some of the investment that the most successful US tech companies have been able to access before they attained their eventual, $billion+ market valuations.

“Furthermore, I question how tech start-ups will access this money. The Government is using the ‘tried and tested’ method of distributing cash to small business via the British Business Bank, who, in turn, will distribute investment via a limited group of VC houses.

“The question is, if I am the founder of a tech company, which could be the next Airbnb, WhatsApp or Instagram, where do I go to access this cash? And, what conditions will need to be met before I can access it?

“Historically, the regulatory requirements of the British Business Bank (BBB) favour safer bets, so potentially, those needing a few years of ‘patient capital’ may be seen as too high risk.

“I would therefore like to see the Government and the BBB take greater, albeit, educated risks with the investment decisions.

“A true reflection of the success of this scheme will be how many future, UK-based global tech companies are helped by this initiative.

“In conclusion: a really nice start, but both more money and greater transparency around investment decisions is needed, so that the right companies can access much-needed cash.”

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