Shifting Dynamics

Highlights from the BVCA Summit 2023
In the second of our summary notes from the BVCA Summit we focus on the technology themes that received attention, and the industry's shifting dynamics in the current environment.
A sense of urgency and purpose pervaded this year’s BVCA Summit, as managers from all parts of the private capital industry identified their investment model as an important contributor to responsible growth, productivity gains and sustainability across the UK.
The industry’s role in today’s challenging economic climate extends from grounded business realities – such as supporting SMEs across the UK, through to the stratospheric – such as investment in Space-related innovation. (Speakers included four space-focused venture capital firms and one astronaut – Major Tim Peake.)
The whole concept of Space investment might seem rather removed from the UK’s more prosaic economic challenges, but some 18% of UK GDP or £370bn is dependent upon our activities in space, from navigation and telecommunications, through to defence, climate science and pharmaceutical research.
AI leadership
Even so, it’s not space that is attracting the lion’s share of VC's attention. That honour goes to artificial intelligence. The generative AI sector in particular is able to attract large funding rounds, even in today’s relatively constrained environment.
Meanwhile, the UK’s knowledge-based economy and tech sector is fast becoming an international hub for AI innovators, with OpenAI choosing London as its first international office. Speakers praised UK government policy for not only promoting investment in such cutting-edge areas, but also for promoting an ethical agenda, such as the goal of responsible AI.
Grappling with the consequences of AI is not just a start-up opportunity – it effects every type of business. In this context, we have seen companies backed by private capital benefit from a significant ‘soft factor’ of being able to share knowledge and experience around adoption of AI with other portfolio companies. For those on the private equity stage at the Summit, the main benefit of AI was mainly identified as increasing operational efficiency.
“Unicorn Kingdom”
The UK is a leader in terms of company formation – and the opportunity to invest in exciting start-ups is not just a London-based phenomenon. International venture capitalists spoke about investments in places with dynamic venture ecosystems, such as Plymouth, Bath, Cambridge and Bristol.
The UK also has an enviable track record of producing global success stories. Deputy Prime Minister, Oliver Dowden reminded delegates that the UK (which he dubbed ‘the Unicorn Kingdom”) has more unicorns than France and Germany combined.
However, there remains a funding gap for UK businesses, particularly in the growth capital stage, and the shortfall has widened since Covid to an estimated £15bn per annum. Numerous speakers and panels focused on the importance of the Mansion House reforms delivering on their ambition. There were also calls to see more EIS money applied to later-stage investment rounds.
Liquidity challenges
While the private capital investment model has proven itself resilient and able to invest through the cycle, it is not entirely immune from the wider economic environment and fundraising is currently challenging.
Numerous discussions talked about what the drivers of liquidity will be in the next 6-12 months, with the secondaries market poised to play a role. All eyes in the industry will be monitoring when the IPO market regains momentum, and private capital managers will be seeking exit opportunities when the environment improves.
The conference noted changes in institutional investor appetite for different asset classes within alternatives in the current climate, including the appetite for private debt funds.
Political support
As highlighted in the first edition of the BVCA's highlights, there was support for the industry from senior politicians who attended the Summit, underscoring the importance of the role that private capital can play in the UK.
Deputy Prime Minister Oliver Dowden MP highlighted the “crucial” role that private equity and venture capital can play in the net zero agenda, and the benefits to pensioners of the Mansion House reforms.
Shadow economic secretary to the Treasury, Tulip Siddiq, said the private sector would play a “huge” role in helping to achieve Labour’s political priorities.
Further insights from the BVCA Summit
- Private capital is key to economic growth (published 6 October 2023)
- People and Capital (published 20 October 2023)