UK to take stakes in later-stage tech start-ups through £375m fund

State funds to be matched by private sector venture capital as UK bids to remain global FinTech leader

The sun rises behind the skyline of the City of London, Britain. Mr Sunak has already made it clear that the tech sector is a key focus of the budget next week. Reuters

Britain’s finance minister Rishi Sunak is set to unveil a new fund to invest £375 million ($522.18m) into UK technology companies, a move that will see taxpayers hold stakes in multiple start-ups.

The new initiative, called Future Fund: Breakthrough, may be announced in the budget on Wednesday, according to the Financial Times, when Mr Sunak will try to balance Covid-support measures with taxation changes to tackle the country's mounting debt.

Mr Sunak has already made it clear that the tech sector is a key focus of the budget next week. On Friday, he unveiled a new fast-track technology visa scheme to attract skilled migrant workers, part of a series of recommendations from a government-backed review of the country's financial sector.

“Now we’ve left the EU and taken back control of our borders, we want to make sure our immigration system helps businesses attract the best talent from around the world,” Mr Sunak said.

Enhancing the UK’s FinTech capabilities is an important part of Mr Sunak’s plan to make post-Brexit Britain “the most open and dynamic place in the world to operate a financial services firm”, according to the Treasury.

“FinTech is one of the UK’s great success stories and will help us seize new opportunities around the world," Mr Sunak said on Friday, following publication of the review.

"We must now build on our global reputation for fostering innovative start-ups and ensure firms can access the talent, finance and support they need to scale up here in the UK."

Under the new Future Fund: Breakthrough, government funds will be matched by private sector venture capital, a move that could help later-stage companies scale up quickly and cover the heavy costs of research and development needed to get to the next level.

The FinTech sector contributes £11bn to the economy, from hubs in London, Leeds, Manchester, Edinburgh, Cardiff, Belfast and elsewhere, but British tech founders have voiced concerns over firms failing to get the investment needed to accelerate to the next level.

While Mr Sunak’s new fund would address that funding gap, it may alienate some taxpayers who see their money pumped into companies at risk of going under.

A separate Future Fund has already invested £1.1bn in 1,000 early-stage start-ups across the country as part of Mr Sunak's Covid-19 business support measures, with convertible loans offered to start-ups struggling to raise funds, which are then matched by private investors.

Through this initiative, the government has already taken stakes in 37 start-up companies after the state loans to help them grow during the pandemic were converted into equity, according to Bloomberg, with £30.4m of loans converted so far.

The Future Fund was unveiled in April to ensure “high-growth” start-ups secured funding to continue operations as the coronavirus triggered the worst recession in more than 300 years.

Meanwhile, the new and separate Future Fund: Breakthrough will focus on later stage companies with each investment amounting to tens of millions of pounds with private sector funds then matching that cash injection.

While the UK has a 10 per cent global market share in FinTech, Mr Sunak wants to grow that further. Under the visa scheme, highly skilled migrants who already have a job offer from a technology business will be set on a “fast track” to obtaining a visa.

The Kalifa Review also urged the UK to overhaul its stock listing rules to help the FinTech industry compete after Brexit.

Separately, Mr Sunak will also use Wednesday’s Budget to announce billions of pounds of funding for the UK’s new infrastructure bank, set to launch in the spring.

First unveiled as part of November’s spending review, the bank is part of Mr Sunak’s pledge to provide “once in a generation” investment into the UK’s infrastructure.

An initial £12bn in capital investment, as well as £10bn in loan guarantees, will be allocated, the Treasury said, with the money helping to generate private investment towards a £40bn infrastructure spending spree.