Benchmarking government support for venture capital: United Kingdom
Table of contents
Following the 2008/09 Great Financial Crisis, UK venture capital (VC) investments experienced a marked decline, with investment levels dropping sharply from 0.07% to 0.04% as a share of GDP between 2008 and 2009. The crisis left a lasting impact on the VC market, with subdued growth until 2016. Since 2017, VC investments have increased significantly, especially after the Covid-19 pandemic when VC volumes reached record highs. In 2021 alone, UK funds invested EUR 5.6 billion in domestic SMEs, up from EUR 2.7 billion in 2020, while the average investment volume between 2017 and 2020 was EUR 2.5 billion (Panel A). In 2022, VC investments declined by 28% mirroring global trends in the VC market. In 2023, VC investment volumes remained broadly the same.
A more disaggregated analysis of investment by UK VC funds in the United Kingdom shows that late-stage investments were most prominent between 2007 and 2011, while start-up investments received proportionally more funding between 2012 and 2020, when the volume of VC investments also increased substantially (Panel C). However, between 2020 and 2021, late-stage investments increased much more than early-stage investments and came back to accounting for the largest share of VC investments (60-40% ratio) (BVCA, 2022[1]). In 2022, and 2023, we see a reverse on this trend, with late-stage investments declining the most, indicating an adjustment after the unnatural increase of late-stage in 2021.
Note: Panel B only refers to venture capital investments allocated to UK companies by formal fund managers regardless of their location, including private equity funds making private equity investments. Investments by business angels, incubators, infrastructure funds, real estate funds, distress debt funds, primary funds-of-funds or secondary funds-of-funds are excluded.
Source: Venture Capital Statistics OECD Data Explorer (OECD, 2024[2]).
In the UK, the government’s involvement in the VC ecosystem started in the 90s. The Enterprise Investment Scheme (EIS), launched in 1993–1994, and the Venture Capital Trusts (VCT) programme, introduced in 1995, were crucial in fostering the UK’s equity investor community by offering tax incentives. EIS encouraged equity investments in start-ups and early-stage companies, while VCTs targeted small, high-risk businesses (HM Revenue & Customs, 2023[3]) (HM Revenue & Customs, 2018[4]). These initiatives led to an increase in start-ups and expanded VC investment volumes (UK Government, 2017[5]).
In the 2000s, the UK government introduced additional VC-related policies. The Enterprise Capital Funds (ECF) programme was launched in 2006 to boost VC availability for SMEs through a funds-of-funds model (BIS, 2023[6]). In 2011, the Angel Co-fund programme was established to support early-stage companies (ACF Investors, 2023[7]). Further support came with the creation of the British Business Bank (BBB) in 2014, aimed at diversifying financing options for SMEs, including equity finance (British Business Bank, 2023[8]). The EIF has also played an important role in the UK VC market. Between 2011 and 2015, the EIF invested EUR 2.3 billion in UK VC and growth funds, catalysing EUR 13.8 billion in SME investments (UK Parliament, 2018[9]) (UK Parliament, 2019[10]). This represented 37% of VC raised in the UK during that period. However, following the Brexit vote in 2016, EIF funding to UK funds reportedly slowed (UK Parliament, 2018[9]).
Despite the different programmes deployed, scaling start-ups into large enterprises remained challenging (UK Government, 2017[5]). The Patient Capital Review in 2017 highlighted gaps in scale-up funding, prompting new initiatives such as the Managed Funds Programme (2017), the British Patient Capital Programme (2018), and the Future Fund: Breakthrough (2021) (British Business Investments, 2018[11]) (British Business Bank, 2023[12]) (British Patient Capital, 2021[13]). These programmes, implemented by the BBB and its subsidiaries, aim to address scale-up funding gaps and support high-growth companies in their transition to larger-scale operations. In November 2023, the government launched the Long-term Investment in Technology and Science (LIFTS) initiative to attract pension fund investment into Science and Technology companies, and in September 2024, the first Long-Term Asset Fund (LTAF) dedicated to providing VC to late-stage companies focusing on technology and science (British Business Bank, 2024[14]).
In terms of direct investment activities, the UK government has introduced programmes targeting companies in specific stages (Angel Co-Fund and Regional Angels Programme to support companies in pre-seed, seed or early stages and the Future Fund: Breakthrough to finance growth-stage R&D-intensive companies). The first programme introduced by the government was the Angel Co-Fund in 2011 with the objective of increasing the supply of business angel (BA) finance and improving the overall quality of the angel investment community by setting higher due diligence standards. The programme works in partnership with angel investors through syndicates, who are responsible for sourcing and leading investment opportunities, with the Fund providing additional capital for their investments. The Fund operates on a pari-passu basis, enabling angels to leverage their investments and share potential returns (ACF Investors, 2023[7]). SMEs can access equity investments ranging from GBP 100,000 to GBP 1 million, with public investments capped at 49% of an investment round (British Business Bank, 2023[15]). Angel investors must be making their first investment in the business, ensuring alignment between public and private objectives. Post-investment, angels can assume non-executive roles, but the programme limits its equity stake in a company to a maximum of 30% after a funding round, though participation in future rounds is allowed within this threshold (ACF Investors, 2023[7]).
Since its inception, the Angel Co-Fund has invested GBP 41.5 million alongside GBP 238 million from business angels, supporting 82 businesses as of December 2018. Each GBP 1 invested by the Fund has leveraged GBP 5 from angel syndicates, demonstrating its effectiveness in mobilizing private investment and suggesting potential for expansion given its relatively small size.
The Regional Angel Programme complements the Angel-Co Fund with a stronger regional dimension. Introduced in 2018 with an initial GBP 100 million in funding, it aims to address regional disparities in access to early-stage equity finance for smaller businesses. It seeks to enhance angel investment activity by raising its profile, professionalizing the field, and attracting third-party capital to invest alongside business angels. The programme targets high-growth businesses with scalable business models. Managed by British Business Investments, the programme operates through a network of regional funds, matching investments made by angel investors. The amount of matching funding varies by region and fund manager (British Business Investment, 2021[16]). In 2021, the government allocated an additional GBP 150 million over three years to expand the programme. As of April 2023, GBP 85 million had been committed across 7 portfolio investments and delivered through 12 partners, highlighting the program's progress in supporting regional equity financing and fostering high-growth businesses (British Business Investments, 2023[17]).
On the other hand, the Future Fund: Breakthrough (FF:B) was introduced in 2021, following the recommendation of the Patient Capital Review in 2017, to address equity funding gaps for growth-stage, R&D-intensive companies in breakthrough technology sectors such as quantum, clean tech, and life sciences. These companies often require substantial capital to progress toward commercialization, which traditional investment deals may not meet. The programme is administered by British Patient Capital with GBP 375 million invested by the BBB. The programme operates as an investor-led initiative, requiring funding applications to be submitted through a qualified sponsor investor. To qualify, sponsor investors must secure at least 50% of their fund size from private investment (exceeding GBP 100 million) and have an investment strategy aligned with FF:B’s objectives (British Patient Capital, 2021[18]).
Eligible companies must be UK-based, with at least half of their workforce and research employees located in the UK. Additional criteria include spending at least 10% of operational costs on R&D over the past three years (or 15% in one year), developing defensible UK-based IP expected to generate the company’s primary revenue, ensuring 20% or more of employees are engaged in research for at least three years post-investment. The company must have previously raised at least GBP 5 million in equity funding and secure at least GBP 21 million in private investment as part of the funding round for the public program to co-invest. The FFB contributes a maximum of 30% of the total investment, with the minimum deal size set at GBP 30 million. Investments are made on the same terms as the sponsor investor (British Patient Capital, 2021[18]) (British Patient Capital, 2021[13]).
Regional funds
The UK Government has actively sought to reduce regional imbalances in the provision of VC through several national and regional programmes. Prior to the establishment of the British Business Bank, approximately 60% of government VC funding (GBP 960 million out of GBP 1.6 billion across 70 funds) was allocated to funds with a regionally constrained investment policy (Capital for Enterprise Limited, 2012[19]). Since the BBB's creation, the government has introduced regional VC programmes in partnership with Local Enterprise Partnerships (LEPs), including the Northern Powerhouse Investment Fund (NPIF), Midlands Engine Investment Fund (MEIF), and the Cornwall & Isles of Scilly Investment Fund (CIOSIF):
Northern Powerhouse Investment Fund (NPIF): Launched in 2017 with support from the European Regional Development Fund (ERDF), NPIF provides over GBP 500 million to SMEs in the North of England (British Business Bank, 2023[20]). By January 2022, it had deployed GBP 318 million across 1,324 investments in 983 companies, leveraging an additional GBP 437 million in private investment (British Business Bank, 2022[21]). A second NPIF, with GBP 600 million, was announced in the 2021 Spending Review to include Northeast LEPs.
Midlands Engine Investment Fund (MEIF): Introduced in March 2018, MEIF focuses on SME growth in the West Midlands, East Midlands, and Southeast Midlands. With GBP 300 million in initial funding, it had deployed GBP 168.9 million across 759 investments in 539 SMEs by March 2022 (British Business Bank, 2023[22]). An additional GBP 400 million was allocated for a second MEIF in the 2021 Spending Review (British Business Bank, 2023[23]).
Cornwall & Isles of Scilly Investment Fund (CIOSIF): This smaller fund was launched in June 2018 with GBP 40 million for SMEs in Cornwall and the Isles of Scilly. Between December 2018 and March 2022, it invested over GBP 12 million through 54 investments in 43 SMEs. An additional GBP 200 million was announced in 2021 to expand the fund (British Business Bank, 2023[24]).
In the 2022 Spending Review, the government committed GBP 1.6 billion to establish the next generation of UK regional funds across the North, Midlands, Southwest of England, Wales, Scotland, and Northern Ireland.
The first fund-of-funds introduced by the UK Department for Business, Innovation and Skills was the Enterprise Capital Fund (ECF) programme in 2006. Managed by private fund managers, ECFs focus on early-stage and growth-stage SMEs in sectors like technology, life sciences, and clean energy. Fund managers are required to raise at least one-third of their total capital from private investors (Ipsos Mori; George Barret, 2021[25]). The scheme features an asymmetric returns structure, favoring private investors with higher profit shares while granting the BBB a 3% prioritized return after capital repayment. This structure has been well-received by fund managers and has resulted in higher returns for private investors compared to the broader UK VC market.
Since its inception, the program has supported 39 private funds and 705 portfolio companies, with the BBB committing GBP 1.85 billion as of April 2023, including GBP 208 million in the 2021/2022 fiscal year (British Business Bank, 2021[26]). The average size of ECF-supported funds is GBP 47 million. By 2019, the programme had significantly increased the supply of VC for early-stage companies by enabling faster deal closures, larger fund sizes, and helping fund managers raise successor funds. Private investors contributed 45% of the total funding across the 14 ECFs evaluated. The impact of the programme on the companies funded by funds participating in the ECF has been notable. Between 2011 and 2019, the 388 firms funded by ECFs created nearly 8,000 jobs and generated GBP 2.2 billion in additional sales. These companies experienced remarkable growth, with annual turnover increasing by 76% and employment by 48% (Ipsos Mori; George Barret, 2021[25]).
In 2017, the UK Government published the Patient Capital Review, which identified a financing gap in the scale-up phase corresponding to investment tickets of GBP 5 million and above. This prompted the creation of the Managed Funds Programme (2017) and the British Patient Capital Programme (2018) to foster long-term and large investment tickets into growth-stage companies.
The Managed Funds Programme (MFP) aims to attract institutional investors and is administered by British Business Investments (BBI), a subsidiary of the BBB (British Business Bank, 2022[27]). The programme invests in large-scale, private sector-managed funds-of-funds. These funds-of-funds, in turn, invest in a range of VC funds supporting innovative, high-growth UK firms. BBI participates in closed-ended limited partnerships, investing on terms at least as favourable as private investors. To align fund managers’ incentives with BBI’s goals, part of their compensation depends on carried interest, and BBI holds representation on Limited Partnership Advisory Committees (British Business Investments, 2018[11]). The programme has a total funding commitment of GBP 500 million, remaining open until all funds are allocated. As of April 2023, GBP 431 million had been committed to seven funds (British Business Investment, 2024[28]).
On the other hand, the British Patient Capital (BPC) Programme addresses the shortage of long-term financing through investments in VC funds (in contrast to the MFP, which invests in large-scale funds-of-funds). The BPC invests on a pari-passu basis and into fixed-term Limited Partnership funds but also supports evergreen funds. Its investments span two stages: venture funds for early-stage funding (pre-seed to Series A) and growth funds for later-stage financing (Series B+). In 2022, the programme shifted its focus, targeting two-thirds of its investments in growth-stage companies. Although BPC is sector-agnostic, its portfolio predominantly includes deep tech, life sciences, and financial services. Net zero, diversity, and regional equity are not explicit goals of the programme (British Business Bank, 2018[29]) (British Business Bank, 2022[30]). BPC received an initial capital investment of GBP 2.5 billion in 2018 and was expected to unlock an additional GBP of 5 billion from private investors (1:2 leverage ratio). As of 2022, BPC’s total investments had reached GBP 1.6 billion, while AUM were GBP 3.1 billion, mostly dispersed across 61 different private VC funds (Kimmo, 2023[31]).
A 2022 evaluation of the programme revealed that BPC-supported financing improved the efficiency of equity financing. Companies accessed funding more quickly and at larger scales, primarily using it for growth, R&D, and commercialization. BPC investments had significant positive impacts on recipient companies, including 55% employment growth on average, a net increase in turnover between GBP 4.7 million and GBP 5.4 million, and an average increase of GBP 60 million in valuations. However, deal sizes aligned with BPC’s objectives were at the lower end of the identified funding gap (GBP 5 million) and funds in the portfolio from 2013 to 2019 had not matched the performance of the broader UK VC market (British Business Bank, 2023[12]).
In November 2023, the UK government announced the creation of a new fund under the Long-term Investment in Technology and Science (LIFTS) initiative, managed by the BBB. This initiative aims to attract pension schemes and asset managers to invest in science and technology companies, as part of broader reforms to unlock savings for economic growth. As part of this initiative, the first Long-Term Asset Fund (LTAF) dedicated to providing venture capital to late-stage technology and science-focused companies was launched in September 2024 (British Business Bank, 2024[14]).
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The full paper is available in English: OECD (2025), Benchmarking government support for Venture Capital: A comparative analysis, OECD SME and Entrepreneurship Papers, OECD Publishing, Paris, https://doi.org/10.1787/81e53985-en
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