Under the chancellor's Mansion House reforms, the UK tech industry has taken note of the decision of nine domestic pension providers to allocate 5% of their default funds to 'unlisted equities' by 2030. The government anticipates that this move could result in £50bn worth of investment by 2030, tapping into the investment potential of pension funds.
This could be positive news for the large number of startups listing in the UK that face difficulties with scaling up. Overseas investors made up 75% of the total capital invested in UK tech startups in 2021, contributing to a record level of investment into the UK tech sector. £8.2bn was invested into UK tech, doubling 2020s figure. Since then, fewer tech startups have been listing in London. The UK government see greater funding from UK-based pension funds as a potential solution to encourage more tech startups to list in the UK.
It is estimated that assets under workplace pension schemes could reach £1 trillion by 2029 according to the British Business Bank. Moving some of this investment into venture capital funds could offer an alternative to overseas investors.
Shubhu Patil, one of our senior corporate solicitors commented:
The government plans to allow UK pension funds to invest in venture capital funds are a great boost for start-ups. In times of economic uncertainty such as we have now, scalable start-ups can drive economic growth by driving job creation. These plans should allow more investment into high-growth tech companies, the tech sector and also the UK economy.
Although it's generally positive news for UK tech startups, there is an argument that default funds are not ideal for long term investments.
James Borshell, one of our senior employee share schemes solicitors and pensions experts commented:
There is some truth in the proposition that investment in potentially fast growing innovative businesses could bring benefits to both UK Plc, and the pension investors, extra capital from such a large source (sources quote £50bn) as the ever growing UK DC schemes would be a boon for many a great start-up.
However, there is also the countervailing argument that pensions and particularly default funds (which are the fund into which pensions place pension savings where the saver hasn’t specifically chosen a different set of investments) are perhaps not the ideal for long term investments given the highly hit or miss nature of such investments that are perhaps better suited to hands-on investors and venture capital investors with clear hit rate targets.
What can UK tech startups do to help secure venture capital funding?
Venture capital investors are particularly drawn to tech companies as they currently dominate the investment market right now. This means that there are a lot of tech companies out there trying to grab the attention of venture capitalists to get them to invest in their businesses. If you want to make your tech company stand out from the crowd and win over a venture capitalist, you really need to do your homework and prepare.
Read our guide on how to raise venture capital for a tech startup to learn more about how to make your tech business attractive to venture capital investors, how to select the right venture capitalist for your tech business, how to raise venture capital and, finally, how to successfully secure venture capital investment.