BGF’s £3bn pledge offers hope amid concerns over UK competitiveness
The Business Growth Fund (BGF) has unveiled a £3bn commitment to back British businesses over the next five years which includes £500m earmarked for early stage start-ups in deep tech and life sciences.
The organisation, which is one of the UK’s most prominent equity investors, has made the announcement at a pivotal time for the UK’s tech sector.
High profile acquisitions, IPO (initial public offering) snubs and growing foreign interest in British innovation have sharpened scrutiny over whether the UK can nurture, or more importantly retain, its homegrown tech champions.
“Backing businesses from their earliest stages is essential to developing a robust and dynamic scale-up economy”, said Tim Rea, co-head of early-stage investments at BGF.
“This £500m commitment allows us to double down on our efforts to support visionary founders with the capital and guidance they need to realise their ambitions.”
The investor, which manages assets valued at over $3.3bn according to Dealroom, has backed more than 600 businesses, including household named like Gousto and autonomous vehicle firm Oxa.
BGF faces growing challenge of stifling growth
BGF’s renewed commitment comes just weeks after Deliveroo – one of the UK’s most recognisable tech unicorns – agreed to a $3bn acquisition by US delivery giant Doordash.
While the deal sent ripples through the food-tech sector, it also highlighted a familiar concern around the UK’s inability to scale and retain its most promising startups.
Speaking of Doordash, Fuel Ventures’ chief executive Mark Pearson noted: “It’s a clear signal that the UK is losing its grip on scaling and retaining its own tech champions”.
Other major exits followed a similar trajectory, with Arm’s decision to snub its London listing in favour of New York and Darktrace’s $5.3bn takeover by Thomas Bravo in 2023 reinforcing fears that British innovation only thrives in international markets.
Mansion House momentum
BGF’s pledge aligns closely with the ambitions of the government’s Mansion House reforms, a suite of financial policy initiatives designed to unlock UK pension capital for private market investments – particularly in high-growth sectors like AI and biotech.
The so-called Mansion House Accord, signed by 17 major pension funds, committed at least 10 per cent of defined contribution assets to private markets by 2030, with five per cent earmarked for UK investments.
If delivered, the Treasury claimed the accord could unlock up to £50bn for scaling firms.
BGF chief executive Andy Gregory said the group’s five-year plan sends a clear message to founders and policymakers alike.
He said: “Our £3bn commitment is about backing British business through the cycle and helping drive their success. We believe in the potential of this country’s entrepreneurs, and we’re ready to go further.”
Still, questions remain over whether pension reforms can move from rhetoric to reality fast enough to stem the flow of talent and capital abroad.
Simon French, chief economist at Panmure Liberum, welcomed the Mansion House measures with caution.
He said: “There is a funding gap here… but private assets may not always align with fiduciary duty and good asset custody. Liquidity, governance and valuations remain key risks.”
Start-ups under pressure
While BGF’s £500m early-stage commitment has been welcomed, the broader startup landscape remains fragile.
New research from Cynergy Bank shows the average number of employees at new firms has slumped to 2.64, down from 3.5 in 2018 – reflecting rising cost pressures, regulatory headwinds and macroeconomic uncertainty.
In the first quarter alone, more than £27bn in turnover exited the economy through either closures or relocations, while the net jobs created from new business formation fell dramatically compared to just a few years ago.
Yet, signs of optimism remain. British Patient Capital recently committed £20m to ‘Cambridge innovation capital’s £100m opportunity fund’, designed to help deep tech and life sciences firms cross the so-called ‘valley of death’ – the stage between research and commercialisation.
“With this new fund we will support portfolio companies at the very point where the UK often loses its most exciting businesses”, said CIC managing partner Andrew Williamson.
Baroness Stowell, chair of the House of Lords communications and digital committee, remains unconvinced the government has done enough.
“Too often it’s a case of ‘UK begins and other countries cash in'” she said, “that has to change”.
A question of confidence
BGF’s approach in offering long-term, minority equity without over-leveraging, stands in contract to more risk-averse or debt-heavy models.
But even with £3bn at the ready, Gregory admitted the wider environment has been challenging.
“There’s a lower tolerance for risk right now”, he noted, “and many processes are falling over due to a lack of confidence among buyers and investors, despite high levels of dry powder”.
The House of Lords committee recently warned that Britain risks becoming an “incubator economy” unless it consolidates fragmented schemes, accelerates reforms, and builds a coherent industrial strategy for scale-ups.
“Every UK unicorn that gallops overseas to list, or sells out to foreign investors, is a blow to UK PLC and our aspirations to growth”, Stowell said.