Powering out of covid 19: The role of patient capital

The CEO of British Patient Capital writes, borrowing from its own name, that investing patient capital will help lift economy out of the covid-19 pandemic.

Catherine Lewis La Torre, British Patient Capital

Our parent company, The British Business Bank, recently announced the Small Business Equity Tracker, which shows the value of total equity investment in UK unlisted small companies rose 24 percent to £8.5 billion in 2019, with 47 percent going to tech.

When I read the Small Business Equity Tracker this time last year, it’s safe to say that not many if any would have envisioned a global pandemic, nor the resulting economic shock.

And while British Patient Capital was clearly not established as a coronavirus support scheme, as a responsible and commercial investor we have worked hard to continue to deliver our program. Crucially though, I believe much of the work that we have done, as evidenced in the Small Business Equity Tracker, has already provided a foundation for our fund managers, both to help support their existing portfolio companies and seek new opportunities as we start to emerge from the crisis.

By way of example, the Small Business Equity Tracker highlights that UK venture funds collectively have £8.4 billion of dry powder, capital yet to be invested. This equates to 12 to 15 months of investment based on 2018 and 2019 investment levels.

While clearly this isn’t all down to British Patient Capital, as of December 31, British Patient Capital had already committed more than £1 billion to venture capital and venture growth managers, and just as importantly were joined by other institutional investors committing approximately a further £4 billion alongside us.

LP Catherine Lewis La Torre, British Patient Capital
Catherine Lewis La Torre, British Patient Capital

That’s £5 billion of capital for innovative, high-growth companies in the market with £3 billion still be to be invested.

In terms of innovative companies which have already received investment, the Small Business Equity Tracker shows British Patient Capital-supported funds almost doubled their deal count in 2019. This increase in British Patient Capital fund activity is responsible for the British Business Bank’s programs supporting 11 percent of UK equity deals between 2017 and 2019, compared to 9 percent between 2016 and 2018.

Helping to address the funding gap that has affected later-stage businesses, by enabling larger deals, is central to our long-term vision for more home-grown fully funded, high-growth companies to fulfil their potential to be players on the global stage.

The Small Business Equity Tracker also evidences for the first time that follow on funding outstripped first-time deals. We know that for our innovative companies to be successful they need multiple funding rounds, and this is a strong signal that our private small business equity markets are maturing.

One other signal is that holding periods are increasing year over year. As such, capturing the value created in high-growth businesses through commitments to venture and venture growth mangers should also become increasingly important for institutional investors such as pension plans and life insurance schemes.

UK venture funds collectively have £8.4 billion of dry powder, capital yet to be invested. This equates to 12 to 15 months of investment based on 2018 and 2019 investment levels.

I have been a long-term investor in private markets funds for too many years to claim to know what the future holds, and innovation by its very nature can be unpredictable, even chaotic, but I do know that new categories, and new global category leaders will be born out of, and perhaps even accelerated, as a result of this crisis.

A well-capitalized base of venture and venture growth managers is crucial not only to creating the right conditions in which innovation, and innovative companies can flourish, but also in capturing the value created by the power of innovation.

It’s the long-term patient capital that we, and others provide, that will fuel innovation, and power the economy out of the covid-19 pandemic.

Catherine Lewis La Torre is CEO of British Patient Capital.