The Challenge of Scaling Innovation: Cambridge Innovation Capital’s Solution
Cambridge Innovation Capital (CIC), a well-known early-stage investor specializing in deep tech and life sciences, faced a growing dilemma. As its portfolio companies matured, they increasingly sought additional funding to scale their operations. While CIC was well-positioned to assess the risks and opportunities of these scaleups, providing such funding through its core fund posed a challenge. The core fund, designed for early-stage investments, risked becoming over-concentrated on scaleup finance. To address this, CIC decided to launch a new fund: the Cambridge Innovation Capital Opportunity Fund. With £100 million in capital, this fund is specifically aimed at supporting science-led scaleups, bridging a critical gap in the UK’s finance ecosystem.
The Growth Finance Gap: A Barrier to UK Innovation
The UK’s finance ecosystem faces a significant challenge: the growth finance gap. Early-stage companies in the UK often rely on domestic investors for initial funding, but as they grow and require larger sums of capital, much of the investment comes from overseas venture capitalists (VCs), particularly from the US and Asia. According to Andrew Williamson, Managing Partner at CIC, 90% of investment in larger deals originates from foreign sources. A 2024 report by the British Venture Capital Association (BVCA) and Beauhurst highlighted this trend, revealing that in 2023, 94.3% of deals exceeding $50 million involved foreign finance. This reliance on overseas capital raises concerns about the long-term benefits for the UK economy, as companies may feel pressure to relocate or list abroad to meet the expectations of international investors.
The Cambridge Innovation Capital Opportunity Fund: A New Approach
The Cambridge Innovation Capital Opportunity Fund represents a proactive response to this challenge. Anchored by significant investments from British Patient Capital (£20 million) and Aviva Investors (£15 million), the fund is designed to provide critical growth capital to science-led scaleups. By focusing on deep tech and life sciences, the fund aligns with the strengths of the Cambridge University ecosystem while also exploring opportunities in Oxford, London, and beyond. The fund has already made its first two investments: Pragmatic Semiconductor, which develops microprocessors from alternative materials, and Riverlane, a company specializing in operating systems and error correction for quantum computers. These investments underscore the fund’s commitment to supporting innovative, high-growth businesses.
The Role of Pension Funds in Bridging the Gap
The Opportunity Fund also highlights the potential role of pension and insurance funds in addressing the growth finance gap. Aviva Investors, part of the Aviva insurance group, sees the scaleup space as an attractive investment opportunity. Williamson emphasizes that such investments align with the goals of the Mansion House Agreement, a government initiative aimed at encouraging pension fund investment in scaleups. While progress on this front is slow, with a target of 2030 for meaningful results, the Opportunity Fund demonstrates the feasibility of involving domestic institutional investors in growth-stage financing. Baroness Stowell, chair of the House of Lords Communications Select Committee, has called for faster action, noting that while 2030 is a reasonable deadline, the UK cannot afford to wait.
Early Impact and Future Ambitions
While the Opportunity Fund is a step in the right direction, its impact will depend on the broader uptake of similar initiatives. Williamson acknowledges that a single fund cannot solve the growth finance gap alone but sees the Opportunity Fund as part of a larger conversation about the UK’s innovation ecosystem. The fund’s focus on deep tech and life sciences reflects CIC’s strengths while addressing areas of high potential for future growth, such as quantum computing and AI. By supporting scaleups, the fund aims to ensure that UK-based companies can grow and thrive without feeling pressured to relocate or list abroad. Looking ahead, CIC plans to launch larger funds in the future, signaling its commitment to addressing the scaleup funding challenge.
Looking Ahead: The Importance of Domestic Finance for UK Innovation
The UK’s innovation sector is renowned for producing startups with groundbreaking ideas, but the lack of domestic funding at the scaleup stage threatens to undermine this success. If the UK is to realize the full potential of its innovation ecosystem, particularly in areas like quantum computing and AI, more domestic finance providers will be required. The Cambridge Innovation Capital Opportunity Fund offers a blueprint for how institutional investors, such as pension and insurance funds, can play a role in addressing the growth finance gap. While the journey ahead is long, the fund represents an important step toward ensuring that UK-based companies can scale, innovate, and remain headquartered in the UK, securing the economic benefits of their success for the nation.
