Search begins for innovation fund manager

The intention to launch a UK Innovation Investment Fund (UK IIF) was announced by the Prime Minister on June 29 as part of the Government’s strategy for ‘Building Britain’s Future’.

The idea is that the Government and the private sector will each invest £150 million in the venture capital fund of funds, with the aim of leveraging enough private investment to build a fund of £1 billion over the next 10 years.

The fund will not invest directly in companies but rather will operate as a ‘fund of funds’, investing in a small number of specialist technology funds that have the expertise and track record to invest directly in companies.

BIS is now a step closer to making the fund a reality, having asked Capital for Enterprise Limited (CfEL) – established by BIS to make, monitor and manage Government’s venture capital fund investments and loan guarantee proposals – to seek submissions from prospective fund managers.

To apply to run the fund, a manager will have to be authorised by the Financial Services Authority (FSA) or an equivalent body, have experience of running a fund of funds, and have a proven track record of selecting technology-focused venture capital funds with a significant UK focus.

Any managers bidding to run the fund will also have to demonstrate how they would raise money from private sector investors to create what the Government wants to be the largest technology fund in Europe.

The Government has made it clear that, while it is aware that venture capital funds have tended to concentrate on making later-stage investments, it is keen that this fund has an impact at all stages.

Although clean technology is one of the sectors BIS wants to support through the fund, it has also made it clear that it does not want the UK IIF to be “overly focussed on any particular sector”.

The prospect of the UK IIF comes at a time when experts are otherwise anticipating a significant dip in venture capital investment in early stage technology companies.

Following the Government’s initial announcement on the UK IIF back in June, Simon Walker, chief executive of the British Private Equity And Venture Capital Association, said he was convinced that the fund could make a real difference to the prospects for UK technology companies “provided it is implemented with the urgency that it deserves”.

This week BIS has made it clear that it wants to see the fund up and running as soon as possible and has set a fairly tight timetable to achieve this. Fund managers have to register their interest in running the fund by August 28 and submit detailed proposals by September 18. A shortlist will be drawn up by October 16  and appointments made by December 11.

A seminar was held yesterday in the City of London for potential investors and fund of fund managers to explain the Government’s objectives and to clarify the process for setting up the fund.

Government figures show venture capital backed companies significantly out-perform other companies and household names such as Google, Vodafone, E-Bay, SKYPE, Amazon, Microsoft and Apple were backed at an early stage by venture capital.