16 October 2017

Financial Times: UK venture capital firm aims to fill hole left by EU

Draper Esprit has backed two venture capital firms that missed out on EU funding after the UK issued its formal notification to leave the bloc, as part of a new strategy of investing in funds as well as companies.

Draper, a publicly listed venture capital firm, has committed money to Seedcamp and Episode1, seed funds that back early-stage start-ups. They are the first of 20 investors to which Draper plans to commit $100m over the next five years.

The move is a sign that UK investors are attempting to fill the large hole left by a pause in funding from the European Investment Fund following the UK’s Article 50 notification in March.

“We’re being encouraged by our City shareholders to fill [the gap],” said Simon Cook, chief executive of Draper Esprit, which invests in start-ups at a later stage than the seed funds it is now backing.

Draper’s commitment follows the UK government’s decision to provide an extra £400m to the British Business Bank for investment into venture capital firms. The sums are still relatively small when compared with the €2.3bn the EIF invested in 144 UK-based venture capital firms between 2011 and 2015, accounting for more than a third of investment in UK-based venture capital firms in that period.

Simon Murdoch, managing partner at Episode1, which has backed Zoopla, Betfair and Lovefilm, said Draper’s new initiative was “welcome” but cautioned that more needed to be done by the government “to help solve the problem of the EIF pausing or probably leaving the UK market”.

The EIF, which is Europe’s largest single backer of venture capital, is a subsidiary of the European Investment Bank and includes commercial banks and other financial institutions among its shareholders. It continued operations in the UK as normal following the vote in June last year to leave the EU but changed stance when Britain formally notified Brussels of its intention to exit.

The EIF has said since the Article 50 notification that it needs to do “more thorough” due diligence before making new investments and has denied any moratorium on activities in the UK. Officials have told at least one UK fund manager they cannot make new investments until they have instructions from the European Commission and EIB.

Full article on Financial Times (subscription required)

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