Creating investment propositions that cannot be ignored
Attracting investment is the number one challenge that UK health and life sciences companies say is holding them back. This has resulted in companies being sold too early and talent and world leading technologies moving to other countries. To reverse this trend, plans for investment into the sector need to be turbocharged, whoever is in government on 5 July 2024. Fortunately, both the main political parties are making the right noises, even if not at the required speed.
The Conservatives
The incumbent government kicked this off with the Mansion House Reform in 2023 and progress is being made with pension funds and VCs working together as part of the Investment Compact for Venture Capital & Growth Equity. 11 pensions funds and over 100 signatories from venture capital and growth equity fund managers have signed up.
As part of these reforms, £50 billion has been earmarked for investment by encouraging pension funds to allocate a minimum of five per cent of their default funds into unlisted equities, including those on the AIM market, by 2030. Conservatively, if only 10 per cent of this was deployed in health and life sciences, that would translate to 100 companies receiving £50 million. That would be transformational for the sector. If retained under the next government, the proposals from the Compact need to be pushed forward and accelerated.
In addition, after much pressure from City stakeholders, the UK Chancellor has proposed a BRISA to increase the available tax-free allowance for people to invest into British companies, another positive for the sector.
Labour is no different
In A Prescription for Growth, Labour’s plan for the life sciences sector published in February 2024, they also state the aim to make access to finance easier. As part of this, they have signalled a review of the pensions landscape to see how to best harness this capital, potentially pooling pension schemes together to diversify risk and encourage investment into growth areas of the economy.
They have also identified a potential British ‘Tibi’ scheme which in France has been effective in transferring money from pension funds into VCs and growth capital. You may ask, what is a ‘Tibi’ scheme? In a 2019 report authored by Philippe Tibi, an economics professor at Ecole Polytechnique (Paris), the malaise in French fundraising was analysed and solutions provided to improve the situation. From the time of the publication of Financing the Fourth Industrial Revolution in 2019 to 2021, €18 billion was raised to move in to such funds. This resulted in the original €20 billion target being revised up to €30 billion. The ‘Tibi’ scheme has been widely credited for what has been an increase in private and public company fundraising and an increase in listings on the French exchange. This trend is only expected to increase in the next years.
Labour has also recently announced that it is looking into creating a UK sovereign wealth fund to invest in the UK’s infrastructure and innovation which, if they can find the money, could be another source of capital.
On balance
There are merits to both the parties’ proposals to encourage investment into UK growth companies, particularly into life sciences. The Conservative approach is up and running and there are similarities with the ‘Tibi’ scheme that Labour is considering. Labour’s approach would use a model that has already proven to be a success, however, if it’s only considered as part of a wider review of pensions, this would mean a further delay in funding reaching companies already at the sharp end.
Our view is that speed is of the essence and, whichever plans they go with, they should be agreed and moved forward as soon as possible so initial money can be deployed and accelerated thereafter. This funding will support compelling investment propositions by helping companies to mature, generate revenues and potentially profits, making the next funding round further derisked and more attractive to a wider pool of investors.