Government on course to create Europe’s largest technology venture capital fund

BIS Department for Business Innovation and Skills
News Release

Government on course to create Europe’s largest technology venture capital fund

Government’s cornerstone investment of £150 million in the UK Innovation Investment Fund leverages additional £175 million from investors

The Chancellor has today [Wednesday 9 December] announced the appointment, subject to contract, of Hermes Private Equity and the European Investment Fund (EIF) as fund-of-fund managers for the UK Innovation Investment Fund (UKIIF). UKIIF will ensure that venture capital is available by early 2010 to invest in innovative British businesses in key sectors (life sciences, clean technology, digital and advanced manufacturing).

The Chancellor also announced that the Government’s investment of £150 million has leveraged £175 million in additional money, creating a pool of funding initially worth £325 million (once legal agreements have been signed). Further private investment will be secured before the Fund closes for investors in 2011. The ambition remains to create a billion pound 15-year fund.

The Government will invest £100m in a £200m technology fund-of-funds to be managed by the EIF, which will cover digital/ICT, life sciences and advanced manufacturing.

It will also invest £50m in a £125m low-carbon and clean tech fund-of-funds to be managed by Hermes. These complementary mandates invest across all technology sectors and at all stages.

Lord Drayson, Science & Innovation Minister, said: UKIIF has been a hit with investors. We can now ensure that Britain’s high tech growth companies will have the capital to fulfil their potential. By backing entrepreneurs we back jobs and growth.

Both Hermes Private Equity and the European Investment Fund have international reputations and solid track records of investing in technology.

As the UK Government seeks global agreement in Copenhagen on reducing carbon emissions, our clean tech sector is presented with a major opportunity. The UKIIF will target £125 million on companies developing clean technologies to ensure that the UK is at the forefront of global efforts to move to a low-carbon economy.

Commenting on the announcement, Simon Walker, Chief Executive of  The British Private Equity & Venture Capital Association (BVCA) said:  “This is terrific news for UK venture capital. To achieve £325m in less than six months after the fund was announced is very impressive, particularly in the current climate. This will be much needed investment for the young, innovative businesses which will create jobs and opportunity in our future growth areas. It is these venture-backed companies that can be at the vanguard of the UK’s economic recovery“.

Notes to Editors

For further information, contact Laure Thomas in the BIS Press Office on 0207 215 5938.

The intention to create the UK Innovation Investment Fund was announced by the Prime Minister on 29 June as part of the Government’s strategy for Building Britain’s Future. The Department for Business, Innovation and Skills, Energy and Climate Change and Health will invest £150 million on a pari-passu basis. The UKIIF will operate through two Fund of Funds structures which means that it will not invest directly in companies, but rather in a small number of specialist technology funds that have the expertise and track record to invest directly in companies with high growth potential.

Hermes Private Equity
The appointment of Hermes Private Equity is subject to contract. Hermes Private Equity is owned by Hermes Fund Managers, one of the most established and largest institutional fund managers in the UK with over £20.5 billion under management. Hermes Private Equity has been investing globally in primary partnerships since the 1990s, and has established itself as one of the leading investors with over £1.5 billion assets under management in private equity funds and over £400 million assets under management in infrastructure funds and direct deals. Hermes annually commits up to £400 million to primary funds from venture capital to large buyouts predominantly in the US, Europe and Asia with an active co-investment programme.

The European Investment Fund (EIF)
The appointment of the EIF is subject to contract. As one of the largest investors in European venture capital, supporting both well-known and first time teams, the EIF has built a strong track record in the industry. The EIF takes stakes in funds which provides a catalytic effect on commitments from a wide range of investors, particularly in the private sector. The scale and scope of EIF investment, along with its added value on fundraising, allows EIF to promote best market practice and corporate governance for the teams it chooses to support. Through its venture capital and private equity interventions, EIF plays a crucial role in the creation and development of high-growth and innovative SMEs by facilitating access to equity for these companies across the entire life cycle of corporate innovation. The EIF was an early investor in both Skype and Kelkoo and made significant returns for its investors.