Conversations revolving around the technology landscape in the United Kingdom often gravitate heavily towards the southern part of the country, where, to many, “the U.K.” and “London” seem synonymous.
A recent report from a House of Commons Committee on venture capital allocation highlighted the unequal distribution of VC investment across the U.K., with London, Oxford, and Cambridge, collectively known as the “golden triangle,” attracting roughly 80% of the country’s total investment. The lion’s share, approximately 70% of the total, is concentrated in the Greater London region, according to Dealroom data.
To address this imbalance, the Edinburgh-based venture capital firm, Par Equity, has launched a new £100 million fund targeting early-stage startups in the northern regions.
“Sensible Valuations” While Cambridge and Oxford have storied histories that attract some of the world’s brightest minds, and London serves as a perennial hub for top talent through institutions like UCL and Imperial College, the rest of the U.K. boasts impressive academic credentials as well. This includes institutions like the “red brick” universities in Manchester, Sheffield, Liverpool, and Leeds, and even further north in places like Edinburgh, where luminaries such as Charles Darwin and Alexander Graham Bell once studied.
When you add the opportunity for more favorable terms away from the bustling south, it becomes clear why an investor might be enticed to focus on regions farther afield.
“In the north of the U.K., we have a unique blend of a rich manufacturing and engineering heritage coupled with world-class R&D departments within academic institutions, producing talent and innovation available at reasonable valuations,” said Paul Munn, Managing Partner at Par Equity. “In 2022, we invested in an advanced materials business in the north at a valuation one-sixth that of its high-profile competitor based in the ‘golden triangle,’ which raised £60 million with an inferior product. Fast forward 18 months, and key staff from this competitor are leaving to join our portfolio company.”
Par Equity’s Journey Par Equity’s origins date back to 2008 when it established its inaugural “innovation fund” with £4.8 million in angel capital. In 2012, it launched a £40 million EIS (Enterprise Investment Scheme) fund, designed as a tax-efficient investment initiative for high-net-worth individuals.
Apart from these funds, Par Equity has deployed capital from its Par Investor Network angel community, British Business Investment’s Regional Angel Program, and the Scottish Government’s innovation-focused investment body, Scottish Enterprise. In total, Par Equity has invested around £167 million across 78 startups, involving 423 individual transactions, including follow-on investments.
The recent announcement focuses on Par Equity’s first institutional VC fund, known as Par Equity Ventures I LP, with major contributions from the Scottish National Investment Bank and British Business Investment. The Strathclyde Pension Fund has also chipped in.
Though Par Equity aims for a total of £100 million, the first close has reached £67 million. This fund is directed at tech companies in the northern U.K. with “high-growth potential,” particularly those with strong intellectual property (IP). Par Equity is particularly interested in climate tech, industrial tech, and health tech, the latter of which yielded substantial returns when Best Buy acquired its Edinburgh-based portfolio company, Current Health, for $400 million in 2021.
Geographically, the investment focus extends from the Midlands upwards, encompassing Scotland and Northern Ireland. While the fund’s management is based in Par Equity’s central Edinburgh office, it has recently established support hubs in Leeds and Sheffield.
Historically, the southern region, especially London, has been the primary choice for aspiring startup founders due to the availability of capital and talent. However, the remote work revolution triggered by the global pandemic, combined with the broader economic environment, may be encouraging founders to reconsider their choice of location. This shift underscores the potential for increased investments across the entire U.K.
“We have half of the U.K.’s best universities in the north, many of which are globally recognized for their science, technology, and engineering departments,” Munn noted. “While London’s magnetic pull is undeniable, the increased cost of living and the impact of COVID have resulted in more graduates choosing to remain in the regions than ever before.”
