This year the UK’s corporate venturing scene faces unique challenges. Is it as strong as ever, or is it affected by domestic political turmoil? The UK may soon be competing against countries with potentially greater access to the European market.
There were a record 152 corporate-backed deals last year, with a total value of $2.9bn of investment backing. These figures were up from 2017’s 137, with the financial services and health sectors doing particularly well. But less cash changed hands, down $200m from 2017’s high of $3.1bn.
Ignacio Giménez, BP Ventures’ managing director for Europe, said the UK was in a strong place. “The UK’s innovation ecosystem is thriving and it is still regarded as the number-one tech hub in Europe”.
The UK outstripped European peers by deal count, but also by level of investment. Germany, the UK’s nearest rival, enjoyed $1.1bn of investment in just 80 deals.
While Giménez acknowledged that political uncertainty had “dampened the mood”, he said it had “little ongoing impact”.
He added: “Against the backdrop of this uncertainty, companies and investors have worked to keep their options open, without committing too many resources. As political risks have failed to materialise in the first half of this year, the mood seems to have lifted again and activity remains high.”
Away from the heat of the Brexit debate, with the next deadline expected to be October 31, the UK is not completely out of the fire. As Giménez pointed out, one of the main challenges facing the UK is competition, which would exist regardless of Brexit.
He said: “While the UK remains the biggest VC market in Europe, competitors are growing equally fast. The UK government and local authorities therefore need to remain committed to promoting and supporting UK-based innovation. What I mean by this is making it easier for companies to test new products and business models, minimising red tape and providing supporting infrastructure.”
Competition is inevitable, but the UK is holding its own. France and Germany are the main European rivals, but their deal counts combined do not surpass the UK’s. Both France and Germany hover around the $1bn mark for corporate-backed deal value in 2018, up significantly in France’s case. France had $816m of investment in 2017, rising to $1.05bn in 2018, whereas Germany increased investment only by $23m from 2017 – from $1,074m to $1,097m.
While the UK does have its strengths, such as its “high quality education system, investor availability, and government support”, Giménez identifies the economic concentration in London as a weakness, saying the government should “continue its work in promoting the innovation ecosystem in the UK by extending it beyond the capital to take it to the next level”.
Education plays a key part in the UK’s innovation scene, not just by developing talent, but also through university spinout startups. Difficult to replicate according to Giménez, it gives the UK a strong advantage, yet whether the startups are coming out of universities at the rate Giménez would like is dubious.
“What I would like to see is more universities starting to spin out great startups. It is a really promising model for innovation, as our investment track record at BP Ventures can show. Earlier this year we invested in C-Capture, a business that designs world-leading chemical processes for carbon dioxide. It is a great example of this model for innovation having spun-out from Leeds University in 2009.”
Fewer deals were made in 2018 involving university spinouts, down to 90 compared to 125 in 2017. Less money was spend too: $986m on deals and exits compared to 2017’s $1.7bn.
Universities are one source of startups, and hubs, accelerators, and incubators are another, where at least according to Giménez, the UK is a world leader.
“A great example of this in our sector is an accelerator we partnered with called TechX. Based out of Aberdeen, it is focussed on helping smaller, ambitious technology developers take their solutions to the oil and gas market.”
BP is after all, the new acronym for British Petroleum, and with a rapidly changing climate, startups and the innovation system across the UK represent a key tool for BP to change.
“A key part of our investment strategy at BP Ventures is to nurture and develop startups and entrepreneurs that can help the wider BP business in its transition to a lower carbon economy. So there is potentially a great deal of mutual benefit for both BP and startups in ensuring the UK’s innovation ecosystem continues to thrive, and as VCs we also need to look at ways in which we can support and develop this innovation further.”
Regardless of what happens over the next few years, politically or environmentally, Giménez says that, “the UK is still the epicentre for our European VC operations and we envisage keeping it this way. We would like to see continued support for the VC community from the UK government, to make sure it continues to thrive and retains its position as a European leader”.
