UK taxpayer to take more stakes in tech start-ups

Chancellor Rishi Sunak is to launch a fund that will invest up to £375m of government money in fast-growing UK technology companies, and result in the taxpayer taking more stakes in start-ups.

The new initiative, called Future Fund: Breakthrough, is due to be announced in the Budget on Wednesday and will involve government money being matched by private sector venture capital.

The tech sector will be a big focus in the Budget, with Sunak last week saying he would launch a visa scheme to help fast-growing companies recruit high-skilled workers.

Sunak’s new fund is meant to support potentially world-beating UK tech companies that need to scale up to the next stage of development, said people briefed on the plans. These businesses are typically lossmaking, owing to the need for major investment in research and development. 

The Treasury confirmed the plans, saying the chancellor would co-invest alongside the private sector in “high-growth, innovative UK companies”, including those in “life sciences, quantum computing or clean tech”.

Tech founders have raised concerns that British businesses sometimes fail to make the next leap in their development, instead selling out to overseas rivals before they reach full potential.

Sunak’s fund will risk government funds going into companies that fail, because the majority of start-ups lose money for their backers. Only a few become global leaders.

A hedge-fund investor before going into politics, Sunak has used government money during the coronavirus crisis to invest more than £1bn in 1,000 UK start-ups through his initiative called the Future Fund.

That fund, part of the government’s Covid-19 business support programme, offered loans to start-ups struggling during the pandemic, with the state money matched by private investors.

The government loans can convert into equity stakes, and some already have: the taxpayer is now a shareholder in a toilet maker, a broadband provider and a company that helps make reusable cups. 

The new Future Fund: Breakthrough will be aimed at more mature companies with established business models, rather than start-ups hit by the pandemic. It is expected to invest in far fewer companies than the Future Fund did.

Sunak is a keen proponent of public-private co-investment schemes. He has been in talks with Mubadala Investment Company, the United Arab Emirates-based sovereign wealth fund, about backing a new UK life-sciences investment vehicle.

Government officials are also drawing up proposals for a co-investment scheme in Britain’s energy sector.

Ministers are pursuing several initiatives to woo the tech sector. A government-commissioned report into the financial technology sector by Ron Kalifa, the former Worldpay chief executive, on Friday recommended changes to the listing regime to attract more founder-led businesses to the London Stock Exchange.

Another government-commissioned report due this week from Jonathan Hill, the former European commissioner, is expected to support listings reform to try to ensure the UK is globally competitive.

Ministers recently announced plans for an £800m scientific research agency to invest government money in cutting-edge technologies.

Boris Johnson outlined his proposal for a British Advanced Research Projects Agency, dubbed Arpa, in the Conservatives’ 2019 election manifesto.

Dominic Cummings, the prime minister’s former chief adviser, wanted Arpa to be modelled on a US body with a similar name, which supported some of the most innovative technological advances of the 1960s and early 1970s, including interactive computing and the infant internet.