An LP’s vision for 2022

Ian Connatty of British Patient Capital looks at the record-setting venture activity from 2021 and offers his take on what is to come this year.

Following a year that saw another record amount of venture capital invested and record-breaking exit values, including a healthy stream of IPOs, 2022 has big shoes to fill. By any measure, 2021 was an extraordinary year for the asset class.

What happens next is far from clear. The rise in digital activity brought about by the increase in remote working and online shopping has benefited the tech sector, generating demand for digital products, services, platforms and enabling infrastructure. This has formed a plethora of opportunities for venture capital investors. And while we expect fast-growing tech companies will continue to create and innovate over the long-term, the emergence of the Omicron variant has introduced a degree of uncertainty as to how it will play out in the nearer term, including whether the benign macroeconomic conditions of the past 12 months will continue into 2022.

In British Patient Capital’s portfolio, we saw Thought Machine and Zego reach unicorn status in 2021, partly as a result of the ‘shift to digital’. It is no coincidence that these are fintech companies, a sector that attracted a phenomenal level of capital in 2021 and which looks well set for 2022, given the pipeline of opportunities coming through the ecosystem.

Ian Connatty, British Patient Capital

Another issue that will undoubtedly carry through 2022 is climate change. Discussion around it became even more prominent last year, culminating in the COP26 Summit in Glasgow, Scotland. ESG issues were also given a new impetus as companies and investors across the UK and the world faced up to the challenge of transitioning to a net-zero economy.

This issue is important to BPC, as well as being front of mind for institutional investors. For example, the Atomico State of European Tech 2021 report noted that “planet positive” investments topped a poll of LPs, investors in venture capital funds, as the most promising sector for VC in Europe in the near future.

Ethics will be increasingly woven into the conversation. Technology is being created faster than our ability to control how it is used, or by whom. For example, what limits might there be on how people’s genetic information is used? How should clinical trials consider the impact of life-saving medicines on diverse patient groups? How and when should we use algorithmic decision-making? What biases might exist in the data that is being used?

It will become increasingly important for venture firms to be able to articulate where they stand on these kinds of issues, not just to their investors, but also with the founders they serve.

This year should also be interesting for deep-tech and life sciences, where British Patient Capital has an increasing focus. Whilst the commercialization of our science and technology base is improving, R&D intensive companies remain underfunded, particularly compared with more mature markets, such as the US. This represents an opportunity, as breakthrough innovations emanating from our world-class science base could help to solve some of society’s greatest challenges, from developing medicines to technologies that support the UK’s transition to net zero.

“The rise in digital activity brought about by the increase in remote working and online shopping has benefited the tech sector, generating demand for digital products, services, platforms and enabling infrastructure”
Ian Connatty
British Patient Capital

In the coming year, we will be supporting the creation of more later-stage funds through our Life Sciences Investment Programme, and co-investing with the market into knowledge-intensive companies through the recently launched Future Fund: Breakthrough program.

A fourth area to look out for in 2022 is web3, a vision for the internet that is more decentralized and runs on blockchains and/or distributed networks. It potentially gives rise to new ways to build and manage businesses, in much the same way that the original incarnation of the internet disrupted offline business models.

It is early days, and there remain challenges to overcome the legal, regulatory and accountability frameworks that will govern this new paradigm. However, we are starting to see use cases emerge for this new approach, such as in decentralized finance, and in the creator economy through innovations such as non-fungible tokens. I expect investor interest in this area to continue in 2022.

Finally, what will be the lasting impact of the pandemic on the economy? Challenges around supply chains have forced companies to think about how they improve resilience and potentially support the building of capability closer to home. Technology may have a role to play here, with 3D printing and vertical farming – growing crops in vertically stacked layers – helping to ensure continuity of supply in key areas. This could see a wave of tech companies emerge outside of London, as innovation moves across industries that are more widely distributed geographically.

This will not happen overnight, of course, but this shift in focus from the digital to the physical will accelerate in 2022. The role of deep tech and life sciences will prove essential. Both are sectors British Patient Capital have a significant presence in, with more planned, and we look forward to funding the innovative UK companies of today so they can become the global success stories of tomorrow.

Ian Connatty is managing director, co-investment and direct investments, of British Patient Capital