Institutional investors are also taking a greater interest in private markets.
UK venture capital funds investing in disruptive start-ups and scale-ups currently have a record £8.4 billion of dry powder ready to deploy, according to data from British Patient Capital.
This cash, spread across hundreds of funds, was likely most raised before the COVID-19 pandemic began but can play a key role in boosting economic activity.
Catherine Lewis La Torre, CEO of British Patient Capital says the figure equates to 12 to 15 months of investment based on 2018 and 2019 investment level.
“While clearly this isn’t all down to British Patient Capital, at 31 December 2019, British Patient Capital has already committed more than £1bn to venture capital and venture growth managers, and just as importantly were joined by other institutional investors committing a further £4bn alongside us. That’s £5bn of capital, with £3bn still to be invested in high-growth innovative companies.”
She says this pot gives venture capital funds the firepower they need to continue to support UK innovative companies now and power the innovation economy as we emerge from the crisis.
Institutional investors have long been hesitant to invest in venture capital but, La Torre says, significant amounts of institutional capital is being invested who are increasingly seeing the attractiveness of private markets.
Follow-on funding - investment in companies that had already received equity finance – is now outstripping first-time deals, she says.
“Given negative bond-yields, asset owners are continuing to seek out higher returns from private markets,” she added.