INSIGHTS / Blog

David Hourican, Chief Financial Officer at the British Business Bank, recently spoke at our Investment Futures event. The following blog summarises his presentation, which looked across the UK investment landscape for spin-outs and innovation-led businesses, identifying challenges and opportunities, and the initiatives the British Business Bank has put in place to stimulate the market.

At the British Business Bank, our mission is to drive sustainable growth, innovation and prosperity across the UK. We do this by delivering a range of lending, equity and investment programmes that address market gaps and help smaller businesses access the finance they need to start, scale and grow.

Backing innovation is central to our strategy. Our equity programmes support high-growth, innovative companies, while our work in UK debt markets enables firms to invest in new products, services and processes.

Alongside finance, we provide research, partnerships and practical guidance through our Finance Hub, helping businesses understand and navigate their funding options.

Together, these initiatives aim to nurture a vibrant entrepreneurial ecosystem, one where innovative businesses can grow, create jobs and contribute to long-term economic success.

The innovation paradox

Innovation isn’t a “nice to have”, it’s central to the UK’s future prosperity. It’s how we create new, high-value jobs, raise productivity and tackle major societal challenges, from climate change to healthcare.

With more than ten UK universities in the global top 100, we have no shortage of world-leading research and ideas. Yet too often:

• breakthroughs fail to make it out of the lab
• start-ups outside the “Golden Triangle” struggle to raise early-stage investment
• when companies do succeed, they are frequently acquired or scaled overseas rather than here in the UK

That’s the innovation paradox: world-class science and research, but not yet a world-class record of consistently converting this into scaled, globally competitive businesses headquartered in the UK.

This is where ecosystems like SETsquared play a critical role, connecting founders, investors, and universities and ensuring more of our regional talent gets the visibility and backing it deserves.

 

 

 

 

 

 

 

 

 

 

 

 

 

The British Business Bank’s role in the innovation landscape

The British Business Bank exists to help smaller businesses across the UK access the finance they need to start, scale and grow. We don’t lend directly to businesses; instead, we work through partners – funds, banks and other intermediaries – to address gaps in the market and unlock private investment.

Our mission is simple: to drive sustainable growth, innovation and prosperity across the UK.

Innovation is at the heart of that mission. Through our equity and debt programmes, we support high-growth, innovative firms at every stage of their journey:

• Regional Angels Programme – tackling regional imbalances in early-stage equity. Over £85m has been deployed into more than 500 businesses across all UK nations and regions.
• Enterprise Capital Funds (ECF) – backing emerging fund managers and building the UK’s VC pipeline. Over £2bn has been committed with third parties, supporting 800+ innovative growing businesses.
• British Patient Capital (BPC) – providing long-term patient capital at later stages, with £2.5bn being deployed to unlock billions more in private sector equity for innovative companies.

Alongside this, our Nations and Regions Investment Funds and further geographically focused initiatives will see £2.6bn committed to ensure entrepreneurs across the UK – wherever and whoever they are – can access capital, including in high-growth innovation clusters.

Universities, spin-outs and the UK as a catalyst country

Our universities are the country’s centres of innovation, and they are among the best in the world. They produce a significant amount of groundbreaking research in critical areas such as genetics and genomics, climate tech, quantum and nanotechnology. One vital way to commercialise this research is through the creation of university spinout companies. These spin-outs have proven to be a crucial link between academia and the marketplace.

However, we don’t just want to be an incubator country, generating ideas that others scale. We want to be a catalyst country, where companies built on those ideas scale here and contribute directly to UK prosperity.

A big part of that is ensuring university spin-outs can access the long-term patient capital they need.

Between 2021 and 2023, the British Business Bank supported 160 equity deals into academic spinouts, 13% of all deals made by the Bank and its supported funds in that period. That’s notably higher than the proportion of spinout deals in the broader equity market.

We also see encouraging evidence of impact:

• 97% of spinouts that received funding from both the Bank and Innovate UK remain active
• This compares to 49% of spin-outs that did not receive that combined support

This underlines how important it is that universities, investors, government and partners like SETsquared and UKRI/Innovate UK work together to create a joined-up funding pipeline for spinouts.

 

 

 

 

 

 

 

 

 

 

 

 

 

What the investment data is telling us

The wider equity market has been through a challenging period:

• equity investment in UK smaller businesses fell slightly in 2024 to £10.8bn, with deal numbers falling more sharply
• early-stage deals were hit particularly hard, especially in the second half of the year
• London still accounted for 61% of total investment and 47% of deals, but dealmaking there contracted more than in the rest of the UK.

There are bright spots, however:

• data from Q1 2025 shows investment values rising again, even as deal numbers remain historically low
• the market is shifting towards fewer, larger deals, driven in part by AI, where deal sizes were on average 40% larger
• university spin-outs raised £1.9bn in 2024, representing 17% of total investment and a record 12% share of all deals.

The message is clear: investors still have an appetite for high-potential innovation, particularly in deep tech and spin-outs. The challenge is making sure that this capital reaches diverse founders and regional ecosystems, not just the usual hotspots.

Diversity, inclusion and the untapped potential of underrepresented founders

If we’re serious about unlocking the UK’s full innovation potential, we can’t only focus on geography. We also need to remove barriers related to background, gender and ethnicity.

Too many talented entrepreneurs from underrepresented groups struggle to access the finance they need to grow. The British Business Bank is working to change that:

• We’ve committed £50m to invest in female-led funds, supporting the work of the Invest in Women Taskforce, an industry-led, government-backed initiative to increase finance for female entrepreneurs.
• We’ve created a dedicated Invest in Women Committee, with a majority-female membership, to champion these funds through our investment pipeline.
• We’ve launched a new £400m Investor Pathways Capital initiative to support diverse and emerging fund managers – helping new entrants, particularly from underrepresented groups, to break into venture capital.

This isn’t about box-ticking. It’s about economics. Every under-served community represents untapped potential for innovation, for jobs and for growth. If we fail to back that potential, we’re not just missing a moral imperative; we’re missing a major commercial opportunity.

Unlocking institutional investment for the long term

Another key piece of the puzzle is mobilising more domestic institutional capital – particularly from UK pension schemes – into high-growth, innovative companies.

Through the planned British Growth Partnership, the Bank aims to:

• Encourage more UK pension funds and institutional investment into the country’s fastest-growing, most innovative businesses
• Raise hundreds of millions of pounds in an initial fund (including a commitment from the Bank itself)
• Invest on a fully commercial, independent basis, ensuring long-term value for UK savers and taxpayers

The goal is simple: to capture more of the value created by UK innovation for UK pensioners and the UK economy.

A call to action

Turning the UK from an incubator of ideas into a catalyst for globally scaled businesses is a shared task.

Investors can look beyond the familiar postcodes and networks to back frontier technologies and diverse founding teams from across the UK.

Universities and ecosystems can continue to strengthen support for spinouts and deepen collaboration with funders.

Policy-makers and institutions – including the British Business Bank – must keep building the patient, long-term capital base that innovative companies need to grow here, not elsewhere.

Together, we can create an ecosystem that nurtures innovation at every stage: from discovery and spinout to scale-up and global success – and ensure the benefits are felt in communities right across the UK.

The opportunity is enormous. Now is the time to seize it.