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Spearheading The Start-Up ‘Miracle’

by | Dec 20, 2018

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The UK is at the forefront of innovation when its comes to creating world class technology companies, says Will Orde, Investment Manager at Oxford Capital

In recent years, entrepreneurship and start-ups have taken increasing prominence in the UK.

The UK has a burgeoning track record of developing truly world class and highly valuable technology companies. There are many factors which have contributed to this but one significant reason has been the enlightened fiscal and regulatory approach taken by the UK government.

At a dinner in London keynoted by Kevin Hollinrake, MP for Thirsk and Malton, he spoke of the “start-up miracle” in the UK, and as an investor trying to support some of the UK’s brightest entrepreneurs and most exciting companies, we are obviously delighted that the outlook remains positive for early stage technology investment.


In the recent Budget, the government announced a number of new measures to bring additional capital into the space, while also reaffirming its commitment to existing schemes, such as EIS. The government continues to work to address the funding gap for ‘knowledge intensive’ (KI) companies, which it identified in the Patient Capital Review last year.

One significant new initiative announced which stood out in particular as a promising addition was the introduction of an improved approved EIS fund structure, focused on knowledge intensive investment.

A New Structure

The announcement of a new approved fund structure for EIS, targeted at investment in KI companies, will be available for fund managers from April 2020. This new fund structure, is designed to help reduce the administrative burden on EIS investors by removing the need for a separate EIS certificate for each investment made and providing clearer timings for tax relief.


In order to qualify, a fund must make 80% of its investments into KI companies and deploy all of the capital raised within two years. For Oxford Capital this new structure is an important improvement over the existing approved fund structure and a sign of continued government support for EIS which of course we welcome.

In essence the new structure promises to make managing EIS investments easier for investors, so long as those investments are directed towards KI companies. So why does the government, and why should we, care about promoting investment into KI companies and what is all the fuss about Patient Capital?

Setting The Scene

There are a set of tests which precisely define what a KI company is. These tests relate to three factors: the proportion of a company’s operating expenses that it directs towards research and development (R&D), the number of PhD and other highly qualified staff that it employs, and the extent to which it relies on the novel intellectual property that it develops to support its business.


From a technical perspective, companies need to meet the threshold tests in at least two of these three areas. From a high-level perspective it means that small companies looking to develop novel technology or science-based products are likely to qualify. As noted earlier this is an area of great strength in the UK and it is great to see further support for these initiatives.

A Daunting Task?

Developing genuinely novel products is not easy. It can often take teams of highly qualified people years to develop these products to the point that they are ready to go to market, all of which requires the investment to fund it and the patience to complete the journey. Early investors in KI companies may not see a cash return on their investment for many years until the company is either sold through an M&A event or achieves a listing. Trying to sell out early can often result in a much smaller outcome and undermine all the hard-work of the entrepreneurs, hence the need for ‘patient capital’.

That may sound like a daunting task, but the reward is worth it. If a company does manage to develop a new product that delivers genuine value for customers it will be well positioned to grow rapidly and deliver value back to its investors, as seen with the recent phenomenon of ‘unicorns’ (companies reaching a $1 billion-plus valuation within 10 years of being founded). And it is not just the company’s investors who benefit.


Early stage companies are one of the main drivers of job creation in the UK economy and leverage the strong base of intellectual property being generated by our universities to turn it into commercial products.

We have enlightened regulators and a government that has not wavered in its support for digital industries.

UK: A Knowledge Hub

The UK is a great place for aspiring entrepreneurs to build successful tech companies. The UK has a great knowledge base, with both world-class universities and a broad and deep talent pool of developers and innovators, providing the raw material required to build a great company.

The UK is also a powerful commercial centre with ready access to financial markets. We have enlightened regulators and a government that has not wavered in its support for digital industries. The Financial Conduct Authority ‘Sandbox’ is a great example of how forward-thinking regulation can support the growth of innovative new companies.


Finally, we have a rich ecosystem of early adopters, from a consumer market with one of the highest penetrations of e-commerce globally, to the NHS, which is actively embracing new digital products. These early adopters are crucial to any new start-up looking to find those first customers.

At Oxford Capital we have identified a small handful of areas in which we believe the UK is especially well positioned and where great companies are likely to be built. These areas include digital healthcare, financial technologies, artificial intelligence, the future of mobility, and the future of retail. We have been proactively seeking out companies building novel products and changing the future of these industries and investing in those that we believe have the strongest potential.

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