UK Venture Capital and Private Equity: Creating Public Value New Horizons //// 2 About This Report
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//// February 2021 New Horizons UK venture capital and private equity: creating public value New Horizons //// 2 About this report This report has been produced by the British Private Equity and Venture Capital Association to highlight the ways in which the industry contributes public value to the United Kingdom and how in 2021 it can help address a range of policy challenges and opportunities. The industry has a significant presence in the UK developed over the past 30 years. Private equity and venture capital provide UK companies with the finance and know-how to deliver sustainable business growth. Active ownership over the medium to long term delivers economic and social value to those involved in the businesses (from employees, management and owners on the one hand to customers and suppliers on the other) and a wide group of stakeholders (the local communities in which they are based and policymakers). Both parts of the industry are focused on delivering sustainable growth for the companies in which they invest: venture capital firms typically support early stage and younger companies, holding minority stakes in the businesses, while private equity firms typically acquire controlling stakes in more established businesses. Part one of the report highlights the key policy themes and how the industry is aligned to support policymakers’ objectives; part two provides further background and detail on how the industry operates; and part three offers further insights into the contributions made by private equity and venture capital. bvca.co.uk //// @bvca New Horizons //// 3 Private equity and venture capital at a glance Employment Footprint Focus Sector expertise 972,000 4,290 90% + people are employed in the UK companies are currently backed of industry backing was directed Technology and healthcare by companies backed by private by private equity and venture at small and medium sized have been among the leading equity and venture capital capital in all nations and regions businesses in 2019 sectors for recent investment of the UK by the industry Investment scale Global funding Global hub Returns £43 billion £48 billion 14.2% has been invested in 3,230 total funds raised in 2019. The Outside the USA, the UK hosts returns have been generated for companies in the past 5 years number of funds raising new the world’s most significantprivate pension funds and other investors capital was 118 equity and venture capital hub, by the UK industry over the past reinforcing the UK’s financial 10 years, out-performing other services leadership asset classes These statistics are taken from BVCA RIA data from 2015-2019 – this reflects the totals of BVCA members. bvca.co.uk //// @bvca New Horizons //// 4 Contents Creating public value //// 5 Part one Contributing to UK public policy priorities //// 6-12 Part two A guide to the private equity and venture capital industry //// 13-15 Part three Case studies: creating public value //// 16-58 Contacts //// 59 bvca.co.uk //// @bvca New Horizons //// 5 Creating public value 1. COVID – delivering economic people employed in businesses in the competitiveness of the UK’s investment recovery as the health UK backed by our members, who in climate which will in turn ensure the emergency recedes recent years have invested in small and ability of private equity and venture medium sized businesses in all parts capital in the UK to support the 2. Cohesion – addressing of the UK and have continued to do so public policy objectives which are disparities in economic and throughout the current COVID crisis. the priorities for 2021 and beyond. social opportunities in the Looking ahead the industry is well nations and regions of the UK positioned to support the UK in a 3. Competitiveness – developing growth-led recovery. Substantial The past year has been unlike the UK economy’s position in funding is available to support the economic recovery through immediate anything we have experienced the world after Brexit investment and ongoing active portfolio before. In a rapidly changing world, 4. Climate and sustainability – management of those businesses. the COVID pandemic has joined setting course for Net Zero Opportunities are being explored Michael Moore climate change, technological in the context of wider throughout the country, developing new Director General, BVCA disruption and social change in environmental, social and tech sectors and growing established fundamentally challenging and governance objectives parts of the economy alike. The industry February 2021 altering the way we live. The has embraced the need to invest resulting health emergency has This agenda is ambitious, but has and act responsibly, recognising the cost over two million lives and support across the political spectrum pressing timescales to adapt the caused unprecedented economic and elsewhere. Everyone has a part economy and society to changing damage in all parts of the world. to play, not least in the business environmental and other realities. community. Responsible businesses To deliver this public value, private equity For policymakers in the United Kingdom, recognise that in addition to and venture capital attract significant as elsewhere, the demands have been generating economic value for the flows of international capital into the acute and the responses on a scale rarely country they must also produce social UK, along with talented individuals from seen in peacetime. This reality will continue value, bringing the two elements across the globe. This underpins the UK’s for some time. But alongside the ongoing together to create public value. position as the world’s largest hub of management of the COVID crisis, attention in The private equity and venture capital capital and expertise for venture capital 2021 is also focused on other critical policy industry certainly understands these and private equity outside the USA. priorities. In four areas of policy in particular imperatives. There are nearly a million We therefore welcome commitments there is clear intent to make progress: to maintain the attractiveness and bvca.co.uk //// @bvca New Horizons //// 6 Part one UK public policy Challenges and opportunities: how venture capital and private equity can and will contribute to UK public policy priorities New Horizons //// 7 Four public policy priorities 1 2 COVID Competitiveness Supporting the economic Driving technology, innovation, recovery growth and productivity 3 4 Cohesion Climate Providing opportunities Delivering ESG objectives and across the UK working towards Net Zero Part one bvca.co.uk //// @bvca New Horizons //// 8 Supporting the COVID recovery Creating public value $14.8bn $15.0bn COVID-19 continues to have an Conditions may remain challenging in the Venture capital investment unparalleled impact on people’s lives immediate future, but the industry is in the UK and jobs. The responses from government continuing to invest, which will deliver $9.8bn $9.2bn have been on a scale never seen before economic growth and job creation to and have been essential to support the underpin the recovery. After a pause $5.9bn UK tech economy through the crisis. For its part, in the spring of 2020, investment activity $5.4bn – the private equity and venture capital has increased again, providing immediate industry is invested in all significant benefits to the economy –Q3 and Q4 sectors of the economy and in all parts both registered 200+ deals and around of the UK. Throughout this period, £37.4bn of aggregate deal value1. Technation / Dealroom / Dealroom Technation Ecosystem update – end of year 2020 BVCA members have worked closely Given the right economic conditions, 2015 2016 2017 2018 2019 2020 with the businesses in which they have and with an attractive investment climate invested, providing additional finance, maintained, the industry will be able to Total UK private equity quarterly strategic guidance and operational support significant further investment into deal volume and value (£bn) expertise. This intense engagement is new opportunities, utilising the record 334 a key part of the business model of 309 amounts of capital raised in 2019. As it the industry. has done before it will invest across all 298 236 stages of a company’s development – from 284 283 207 start-ups in deeptech, fintech, medtech (page10) Stabilisation to recovery and life sciences supported by venture While great uncertainty remains, the capital, to growth capital and the buyout 137 optimism generated by the rollout of the of more mature businesses, which is the COVID vaccines means that during 2021 focus of private equity. the country can look forward to a shift £19.8 £22.2 £27.6 £38.2 £34.5 £15.3 £17.9 19.5 in the economy, from stabilisation to KPMG UK Mid-market Private Equity Review: FY 2020 recovery. Private equity and venture capital Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 will support both of these phases. While 2019 2020 the industry’s initial focus during the crisis has been to support its existing portfolio 2020 in review of investments, capital has continued to – be raised by BVCA members to invest in Job vacancies in tech have the development of new opportunities. 1 https://assets.kpmg/content/dam/kpmg/uk/pdf/2021/01/ + uk-mid-market-pe-review.pdf (page 10 - overall UK PE activity) 50% climbed 50% since July 2020 Nation Tech Part one bvca.co.uk //// @bvca New Horizons //// 9 Developing UK competitiveness Creating public value Technology and innovation, Sustained productivity increases involve the Productivity change under 4.1% 3.7% growth and productivity adoption of new technology and EY’s report private equity ownership shows a 3.3% annual increase, over 12 2.9% years, in the level of capital expenditure on 2.2% Academic research has demonstrated 1.9% 2.1% numerous times that private equity backed tangible assets by these businesses. Private companies are more productive than other equity is actively looking for investments businesses in their economies.