Discussions about the U.K. tech landscape often gravitate toward the southern region, to the point where “the U.K.” and “London” are practically synonymous in many people’s minds.
A recent report from the House of Commons Committee highlighted the imbalanced distribution of venture capital (VC) investment across the U.K., with the “golden triangle” encompassing London, Oxford, and Cambridge receiving approximately 80% of the country’s total investment. The lion’s share of this, around 70%, pours into the Greater London region, according to data from Dealroom.
Par Equity, a venture capital firm based in Edinburgh, is taking steps to address this disparity with a new £100 million fund aimed at supporting early-stage startups in the northern regions.
“Sensible Valuations” While Cambridge and Oxford boast legendary histories that attract some of the world’s finest minds, and London continually lures top talent through institutions like UCL and Imperial College, the rest of the U.K. is not lacking in academic excellence. This is evident in institutions such as the “red brick” universities in cities like Manchester, Sheffield, Liverpool, and Leeds. Moreover, further north in places like Edinburgh, notable figures like Charles Darwin and Alexander Graham Bell received their education.
When you factor in the potential for more favorable investment terms outside of the bustling southern region, it becomes clear why investors might be enticed to shift their focus to more distant locations.
“In the north of the U.K., we have a unique combination of a rich manufacturing and engineering heritage along with academic institutions housing world-class R&D departments that produce talent and innovation, all available at reasonable valuations,” explained Paul Munn, Managing Partner at Par Equity. “In 2022, we supported an advanced materials company at one-sixth of the valuation of its high-profile competitor based in the ‘golden triangle,’ which had raised £60 million with an inferior product. Fast forward 18 months, and key staff members are leaving this competitor to join our portfolio company.”
Par Equity’s Journey Par Equity’s origins trace back to 2008 when it established an inaugural “innovation fund” of £4.8 million in angel capital. In 2012, it introduced a £40 million EIS fund, designed to encourage tax-efficient investments from high-net-worth individuals. In addition to these funds, Par Equity deployed capital from 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 invested around £167 million, supporting 78 startups through 423 individual transactions, including follow-on investments.
The current announcement marks Par Equity’s first institutional VC fund, known as Par Equity Ventures I LP, with the Scottish National Investment Bank and BBI playing a significant role in funding. While the goal is to reach £100 million in total, the initial close stands at £67 million. This fund will focus on tech companies in the northern U.K. with high-growth potential, particularly those with strong intellectual property. Par Equity will specifically target climate tech, industrial tech, and health tech, citing the successful exit of its Edinburgh-based portfolio company, Current Health, which was acquired by Best Buy for $400 million in 2021.
Geographically, the investment scope is somewhat flexible, but it primarily centers on the Midlands and beyond, which includes Scotland and Northern Ireland. Although the fund will be managed from Par Equity’s central Edinburgh office, it has recently established hubs in Leeds and Sheffield to provide support.
Traditionally, the South, particularly London, has been a magnet for aspiring startup founders due to the availability of capital and talent. However, the shift to remote work prompted by the global pandemic, combined with broader economic factors, might encourage founders to reconsider their base of operations. This makes it an opportune moment to increase investments across the entire U.K.
“In the north, we’re home to half of the U.K.’s top universities, many of which have world-class science, technology, and engineering departments,” noted Munn. “While London undeniably has a strong pull, since COVID and with the rising cost of living, we’re seeing more graduates choosing to remain in the regions than ever before.”
