A recent House of Commons Committee report on venture capital allocation pointed to “uneven levels of VC investment” across the U.K., with the so-called “golden triangle” of London, Oxford and Cambridge attracting some 80 percent of the country’s total investment. The lion’s share — around 70 percent of the total — is poured into the Greater London region, as per Dealroom data.
And this is something Edinburgh-based VC firm Par Equity is seeking to address, with a new £100 million fund targeting early-stage startups in the north.
While the fabled histories of Cambridge and Oxford attract some of the world’s greatest minds, and the nearby capital London serving as a perennial draw for top talent via the likes of UCL and Imperial College, the rest of the U.K. isn’t exactly lacking when it comes to academic credentials either — whether it’s through the so-called “red brick” universities of Manchester, Sheffield, Liverpool, and Leeds, or further north in places such as Edinburgh where greats such as Charles Darwin and Alexander Graham Bell studied.
Throw into the mix the ability to garner more favorable terms away from the buzzy south, and it’s easy to see why an investor might be tempted to lay their focus on locales further afield.
“In the north of the U.K. we have a combination of a rich manufacturing and engineering heritage coupled with academic institutions with world class R&D departments which are producing talent and innovation, accessible at sensible valuations,” Paul Munn, Par Equity managing partner told TechCrunch. “In 2022, we backed an advanced materials business at one sixth of the valuation of its high-profile competitor based in the ‘golden triangle,’ which raised £60 million with an inferior product. Fast-forward 18 months, and key members of staff are leaving this competitor and seeking to join our portfolio company.”
The story so far
Par Equity’s roots can be traced back to 2008, starting with an inaugural “innovation fund” constituting £4.8 million in angel capital. It followed this up in 2012 with a £40 million EIS (enterprise investment scheme) fund, which is basically a tax-efficient investment initiative aimed at high-net-worth individuals.
In addition to this, Par Equity has also been deploying capital raised via its Par Investor Network angel community, British Business Investment’s (BBI) Regional Angel Program, and the Scottish Government’s innovation-focused investment body Scottish Enterprise. In total, Par Equity has deployed some £167 million in capital to date, incorporating 78 startups and 423 individual transactions including follow-on investments.
Today’s announcement is all about Par Equity’s first ever institutional VC fund, dubbed Par Equity Ventures I LP, with Scottish National Investment Bank and BBI spearheading the bulk of the fund’s capital, with additional input from the Strathclyde Pension Fund.
While Par Equity is targeting £100 million in total, its first close sits at £67 million, and will be aimed at tech companies with “high-growth potential” across the north of the U.K., particularly businesses with strong IP. Specifically, Par Equity will be looking at climate tech, industrial tech, and health tech, with the latter category serving up a lucrative exit for Par Equity when Best Buy acquired its Edinburgh-based portfolio company Current Health for $400 million in 2021.
Now, the investment boundaries may blur somewhat as there isn’t a straight line that divides the north and south. But for the purposes of its investments, Par Equity will focus on the Midlands up, which obviously includes Scotland and Northern Ireland across the water. And while the fund will be managed from Par Equity’s central Edinburgh office, it also recently opened hubs in Leeds and Sheffield which will act in a support capacity.
Historically, the South — and London in particular — have always been huge draws for budding startup founders, due for the most part to the availability of capital and talent. However, the remote-work revolution spurred by the global pandemic, coupled with the macro economic environment, could be encouraging founders to rethink where they call home. And this is why now could be a good time to double-down on investments across the whole of the U.K.
“We have half of the U.K.’s best universities in the north, many of which are ranked world class in within their science, technology and engineering departments,” Munn said. “Sadly, over the last 15 years, we’ve seen a constant drain of companies and talent leaving the north of the U.K. for London. There’s no denying the capital’s magnetic draw, however since Covid, and with the increase in the cost-of-living, we’re seeing more graduates stay in the regions than ever before.”