Louis Taylor, the CEO of the British Business Bank (BBB), the UK’s biggest venture investor, has just come back from holiday, where he says he has “tried to shed” some excess weight amassed by the many corporate breakfasts and dinners he attends.
Conversely, the BBB is fattening up, courtesy of the benevolence of the UK government, its owner, which has given it an additional £6.6bn to invest in VC funds and startups by 2030, as Labour hopes to boost the flagging economy through its Industrial Strategy.
Set up in 2014 to improve the flow of capital to private finance, the BBB (which also has a banking arm), plays a pivotal role in how the UK funds startups, through direct and VC investments, encouraging the private sector to join investments they might view as too risky.
But the BBB -which invested £1.29bn in 2024 in investment capital- faces questions, ranging from whether it has the smarts to directly invest in startups to the quality of its portfolio? Observers also question whether its “civil service” salaries can attract top talent.
One source says: “Surely the BBB should stick to fund investing rather than trying to move into an area where they have a limited track record.”
“Good quality” portfolio
Defending the BBB portfolio, Taylor says it’s “good quality”. He says: “Not everything is going to be a winner, but that's the nature of the investment industry that we're involved in. We’re still carrying our portfolio at more than 1.3 times what we paid for it.”
The BBB also points to the 22 unicorns which it has supported, including the likes of AI unicorn Tractable and fintech Thought Machine. One of its recent wins has been OrganOx, the University of Oxford spinout, which makes organ preservation devices, which in August was sold to global medical company Terumo Corporation in a $1.5bn “landmark” deal.
Taylor, who has been CEO for three years, says BBB’s investment in OrganOx was a “ten-year burn”. He adds: “It took a long time to get that to a billion and a half. And similarly, there is a lot of companies in our portfolio that are quite new for us, which will take some time to realise.”
BBB as direct investor and magnet for other funding
On criticism that it should leave direct investing to VCs in the private sector, Taylor says: “Have we been directly investing as long as we've been doing fund investing? Well, no. But actually, we built our skill set in direct investing by looking at the companies we've been investing in through funds and looking at the ones from there that we want to directly invest in.”
Generally speaking, the BBB is not competing directly with private investors, but is more acting as a stimulus to “crowd in” domestic institutional funds. The UK tech ecosystem has long faced the charge that it’s good at birthing startups, but not so good at scaling them, a disconnect the BBB was established to fix.
Allied to this is the pull of the US investment market for UK startups, which is much bigger and more risk-tolerant, while US predators are also keen to hoover up the next big UK startups.
Taylor, who has also served as CEO of UK government credit agency, UK Export Finance, and senior roles at Standard Chartered, says: “I mean, we’re not saying there shouldn’t be overseas capital in our scale-up companies. There absolutely should. It can be very helpful.
“But there should be more domestic counterbalance to that overseas capital because companies tend to migrate to where their capital comes from. We don’t want to lose our best companies just at the point they’re becoming economically significant. We do want them to stay here, to do research, to employ people, to have more spinoff opportunities.”
Sheffield HQ a "real advantage"
Meanwhile, some have suggested that the BBB’s Sheffield headquarters could be a bit of a turn off for talent.
Not so, says Taylor, who argues it’s a “real advantage”, citing the perspective it gives the BBB on investing in the UK regions, part of its remit, as well as benefiting from less competition for talent.
He adds: “You look at Sheffield's universities and more of their graduates stay in Sheffield than pretty much any other university because it's a great place to be and there's great opportunity.”
Taylor, who starts work at 8am and often attends work evening events, also defends criticism that talent might also be turned off by the BBB’s “civil service level” salaries.
He added: “We’re not going to pay top whack private sector.” But he points to wider “social purposes” working for the BBB and helping generate economic growth.
Paucity of pension fund investment
Another long-standing burning issue is the paucity of UK pension funds invested in VCs and UK startups. Taylor says: “This is an allocation issue. It's a risk appetite issue. It's not about the amount of money we've got.”
The BBB’s expanded role now includes the British Growth Partnership, an investment vehicle looking to raise hundreds of millions of pounds from UK pension funds and other institutions to back British venture capital.
It is now, for the first time, managing capital on behalf of pension funds together with other institutional investors. Meanwhile, earlier this year, the bosses of the UK’s largest pension funds struck a deal with the government that it claims will release up to £50bn worth of investments, with at least 50 per cent earmarked for British startups, including home-grown startups.
On the British Growth Partnership, he says: “We're seeking to raise hundreds of millions of pounds. We're in the market at the moment. “We've got due diligence going on, and we hope to be investing by the end of this year.”
Lack of diversity in startups
Like in other industries, the lack of diversity continues to be an issue in UK startups. This year, the BBB committed £400m to diverse and emerging fund managers. The BBB has also set its first gender target, with the initiative aiming to invest at least 50 per cent of the capital into female fund managers.
Taylor said: “This is not an ideological push, this is a commercial push that we’ve got to get underserved entrepreneurs into the mainstream of venture capital investment.”
On university startup stakes
The BBB is also a big investor in UK university spinouts, backing one in four UK university spinouts, which raised £1.9bn in equity investment last year. Critics accuse the universities of taking too big a stake in startups, though 2024 figures show universities took an average of 16.1 per cent in the companies they spun out, down from an average of 21.5% per cent in 2023.
Taylor says there is now “more realism” across UK universities compared to a few years ago. He says: “I am personally inclined to the view that universities should see the value of spinouts not least in drawing research funds to the university itself rather than being a cash cow for making capital gain.”
IPO shortages
On another key issue of the dearth of UK IPOs, Taylor said: “I wouldn't focus only on public markets. I think it's about liquidity in risk assets generally, so private markets as well.
“And I think that if there were a greater appreciation by domestic institutions in the quality of the UK's innovation ecosystem, there would be a lot more liquidity in UK markets, private and public as well. And actually, valuation differentials between the UK and the US would be much narrower.”
Is UK losing its lustre?
Taylor does not think the UK has lost its status as an investment hotbed, pointing out that the UK venture market is bigger than France, Germany and Sweden combined.
He adds: “I think London maintains its position as a really, really strong centre of venture capital for Europe. And I don't think that'll change unless our innovation ecosystem kind of collapses and I don’t see that happening.”
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