British Business Bank injects £90M into European VC funds and eyes EU Scaleup Fund

What happened?

The British Business Bank (BBB), the UK's public investment bank, has backed 10 venture capital (VC) funds with a total of £90 million (approximately €105 million), as exclusively revealed by Sifted. The selected funds include both British and European managers, with a focus on deep tech, climate, and health technologies. In parallel, BBB is evaluating the possibility of acquiring a stake in the EU's Scaleup Fund, a €5 billion fund launched by the European Investment Bank (EIB) to support growth-stage companies.

Why is this important?

This is the first time BBB has directly invested in venture capital funds based in the European Union, representing a significant shift in its post-Brexit strategy. Traditionally, the bank had focused on the UK domestic market. The move aims to maintain the connectivity of the UK's entrepreneurial ecosystem with the continent, ensuring that British startups continue to have access to capital and pan-European networks. Additionally, a potential entry into the EU Scaleup Fund could give the UK influence over Europe's largest public VC initiative.

Consequences and analysis

For the British entrepreneurial ecosystem

The £90 million injection into European funds will help British startups attract investment from funds operating on a continental scale. However, it could also lead to a brain drain and company relocation to the EU if the backed funds decide to prioritize European startups. According to Sifted data, 40% of the selected funds have offices in the UK, mitigating this risk.

For the UK-EU relationship

Participation in the Scaleup Fund would be a significant political gesture, as the fund is a flagship EU initiative to foster technological sovereignty. Sifted notes that negotiations are in early stages and that the EIB requires non-EU investors to contribute proportionally to management costs, which could make the deal more expensive for British taxpayers.

For the European venture capital market

BBB's entry as an investor in European funds injects liquidity and credibility. However, some fund managers fear that the presence of a British public investor could complicate fundraising from other European sources, especially in sensitive sectors such as defense or artificial intelligence.

What should readers know?

• The backed funds: Among the 10 funds are EQT Ventures, Northzone, Balderton Capital, and Atomico, all with a presence in London and the EU.
• The Scaleup Fund: It is a fund of funds managed by the EIB that invests in European VCs to support startup expansion. Its target size is €5 billion, with a first close of €1.5 billion already committed.
• Conditions: BBB's investment in the Scaleup Fund would be subject to the UK matching the conditions of EU investors, including sharing data and complying with state aid regulations.
• Impact on startups: British startups seeking Series B rounds or higher could benefit from a larger capital pool, but will also face increased competition from European startups for those funds.

Historical context

The British Business Bank was created in 2014 to increase the supply of finance to UK SMEs. After Brexit, the bank has gradually expanded its mandate to include international investments, aiming to compensate for the loss of access to European programs such as Horizon Europe. In 2023, BBB launched a co-investment program with international VC funds, but this is its first direct bet on EU-based funds.

Speculation and unconfirmed

Information about the potential participation in the Scaleup Fund has not been officially confirmed by either BBB or the EIB. Sifted cites sources close to the negotiations but warns that the deal may not materialize if political or financial conditions are unfavorable. Likewise, the exact amount BBB is willing to invest in the Scaleup Fund is unknown.

Conclusion

The British Business Bank is taking a bold step to maintain the integration of the UK's entrepreneurial ecosystem with Europe. If the bet on the Scaleup Fund materializes, the UK could regain some of the influence lost in European innovation policy. However, success will depend on BBB's ability to negotiate fair terms and on the backed funds achieving attractive returns for British taxpayers.