Key facts
- The UK government's £1bn scale-up fund is intended to invest in science and technology companies.
- Leading venture capital investors have warned that a traditional asset manager could lead to poor performance.
- Concerns exist that a generalist manager would struggle to access the most promising startups.
- M&G and Schroders, large asset managers, have reportedly bid to run the fund.
- Venture capitalists argue that specialist firms with ecosystem experience are better suited to manage such a fund.
A group of prominent UK venture capital investors has voiced strong opposition to the government's plans for its £1bn scale-up fund, warning that its success is jeopardized if managed by traditional asset managers rather than specialist venture capital firms.
These industry leaders, who have backed successful British startups like Elevenlabs and Synthesia, argue that awarding the tech-focused UK Scale-Up Fund to an institutional investment house would undermine the UK's venture ecosystem and lead to missed opportunities in accessing high-growth companies. The concerns arise as major asset managers M&G and Schroders have reportedly expressed interest in managing the fund, which is intended to channel pension provider capital into innovative science and technology firms.
Alex McDonald, CEO of Sequel, stated that appointing a public markets investor would 'make a mockery' of the UK's venture industry, emphasizing the need for a manager with proven experience in the ecosystem and a deep understanding of technology. Harry Stebbings of 20VC warned that generalist investors would face 'adverse selection,' potentially only attracting companies unable to secure funding elsewhere. Tom Wilson of Seedventures added that the growth stage investment process is highly competitive, with the best companies having numerous options.
The warnings coincide with broader efforts to direct more pension fund capital towards domestic private companies. Schroders has been active in this area, launching a long-term asset fund for pension providers and investing in firms like Wayve and Elevenlabs. M&G has also backed companies such as Physics X and Pragmatic Semiconductor. Stebbings suggested that a focus on cost over upside by government organizations could lead to lower quality investments and ultimately hurt pensioners.