The UK government has unveiled plans for a £1bn Scale-up Fund, bringing together major pension providers to back high-growth science and tech companies.
The proposal forms part of the government’s plans to unlock more pension investment into Britain’s fastest-growing businesses, with ministers arguing it will help more companies secure the long-term funding needed to commercialise new technologies, scale faster and create skilled jobs.
Nest, Railpen, Leeds-based Border to Coast and Local Pensions Partnership Investments (LPPI) are among the pension funds backing the government-led initiative, with the British Business Bank set to work alongside investors to support the launch of the fund and invest in partnership with the group. The government is set to start its search for a manager to oversee the fund ‘soon’.
READ MORE: Major pension funds unite to back £1bn science and tech scale-up fund
“I want the UK to become the best place in the world both to start and scale a business, with investment, jobs and skills in every region,” said Chancellor John Healey, while Prime Minister Andy Burnham said the new fund could “help unlock good growth in every postcode”.
But while investors across the North have broadly welcomed the proposal, many believe its success will hinge on one crucial question: will the capital genuinely reach high-growth businesses across the North, or will it continue to flow through London’s established investment networks?
It’s a question that has repeatedly surfaced during Prolific North’s GRAFT Regional Tech Champions series.
Across conversations with founders, investors and ecosystem leaders in regions like Greater Manchester, Liverpool City Region and the North East, one theme has consistently emerged. While access to early-stage funding has improved significantly in recent years, securing larger rounds of patient capital remains one of the biggest barriers to scaling ambitious Northern businesses.
For Duncan Johnson, CEO of investment company Northern Gritstone which focuses on scaling early-stage northern life sciences and tech companies, the biggest challenge facing many of the UK’s most ambitious technology companies is no longer raising their first £1m to £5m.
Instead, it’s securing the capital needed to commercialise world-class research and compete globally.
“We’re often helping to commercialise fundamental university research, not iterating on a consumer app, and that takes years, not quarters. Patient, institutional capital that understands those timescales is still thin in the UK compared with the US, and closing that gap is one of the defining challenges of the next decade,” Johnson tells Prolific North.
Johnson believes the proposed fund could help address that gap.
“Northern Gritstone’s shareholders, the majority of which are UK pension funds, allow us to access patient capital. Could this new fund help? Yes, because bringing together institutional capital, pension funds, alongside the British Business Bank and the Office for Investment is exactly the kind of coordinated, “large-scale” capital this market has been missing.”
But he believes the proposal alone will not solve the UK’s scale-up challenge.
“Whether it makes a meaningful difference overall, and then to the North specifically, depends entirely on where that capital actually flows and whether this is the catalyst for raising more scale up capital in the uk. Let’s be clear, £1bn is not large in venture terms.
“Pension funds have long argued the constraint has never really been capital, it’s pipeline. £1bn doesn’t automatically find its way to businesses in the North unless the quality of opportunity is good enough.
“That depends upon managers doing the work of originating and aggregating opportunities into something that’s investable at an institutional scale and is of the right quality. This is what Northern Gritstone does.”
His comments reflect a wider view among Northern investors. John Gray, head of debt at Liverpool-based fund management company River Capital, said pension-backed investment has already demonstrated its value in helping SMEs access growth finance through the North West Business Growth Loans Fund, supported by Greater Manchester Pension Fund.
“This is a very positive development and one we strongly welcome,” he said.
“Expanding this type of investment is exactly what’s needed to strengthen the science and technology ecosystem across the North, boosting innovation, productivity and long-term economic growth.”
But he agreed the success of the new fund would depend on how widely capital is distributed.
“To maximise its impact, however, it’s vital that capital is distributed across the whole market and that allocations are appropriately sized to reflect the scale and expertise of fund managers, ensuring businesses in every region can benefit.”
Johnson over at Northern Gritstone believes the government already has the foundations to make that happen.
“There is an innovation hub in the North of England which we call the ‘Northern Arc’, and that stretches across a region of more than eight million people, from the North West to West Yorkshire and South Yorkshire and includes the research-intensive universities of Leeds, Liverpool, Manchester and Sheffield.
“This Northern Arc is a key pillar of the UK Technology Diamond alongside Oxford, Cambridge and London.
“If government wants this capital to benefit businesses outside London, it needs to treat the Diamond as one connected national proposition, giving pension funds and insurers a genuine incentive to allocate a meaningful share of assets across that Diamond. This is how the UK can compete globally.”
Vicky Protano, corporate lawyer at Mills & Reeve, said Northern businesses were well placed to benefit if the fund worked alongside existing regional investment ecosystems.
“The proposed £1bn pension-backed fund is an encouraging step for UK scale-ups, entrepreneurs and investors, particularly those operating in science and technology where access to growth capital remains one of the biggest barriers to scaling,” she said.
“For Northern businesses, there is a clear and significant opportunity. The region is home to world-class universities, internationally recognised research and a growing pipeline of innovative companies. While there has been significant progress in funding support from the likes of Northern Gritstone and PXN’s Northern Powerhouse Investment Fund, we’re still seeing a clear imbalance in investment flowing into the Northern cities.”
She pointed to Mills & Reeve’s recent research into the UK’s femtech sector, which revealed that while investment has increased by more than 194% over the past decade, most deals continue to be concentrated in London.
“The fund has the potential to strengthen both the Northern economy and the UK’s wider science and technology ambitions,” she said.
“To get this right, the government should leverage existing regional ecosystems that help businesses commercialise innovation and attract investment.
“The Cambridge x Manchester Innovation Partnership is also a strong example of what’s possible. By connecting research, industry, investors and entrepreneurs across two leading innovation hubs, it’s creating an environment where businesses have better access to talent, funding, expertise and, importantly, space.
“If the new fund can complement and work alongside the existing and growing investment market, it would have an important role in strengthening the North’s scale-up ecosystem.”
