The success of Cambridge’s knowledge-intensive firms has been placed at the heart of Government’s growth mission. But where is the money to fund their growth going to come from?
Cambridge’s growth story is one of discovery, competition and collaboration: great minds birthing great ideas, spinning out leading edge companies and dynamic solutions to global problems. The new register of UK university spinouts – published last month – shows Cambridge at the top of the list, having generated 299 companies since 2012[1]. Comparatively speaking, the city can hold its head high in elite global company when it comes to science, innovation and idea generation: £25bn in total annual turnover generated by knowledge-intensive firms, 125 Nobel Prize winners and 26 unicorns attest to that.
It makes sense that a Government whose ambitions are predicated on growth, and is casting around for places that can help to generate it, would alight on Cambridge – and the revived wider Oxford – Cambridge Corridor geography. Cambridge alone contributes over £1bn net directly to the Exchequer, and its effective growth has been constrained by infrastructure limitations, governance challenges and in recent years, the fundraising landscape – so the potential for this city region to be even more additive, with the right mix of supportive interventions, is clear.
A Domestic Growth Capital Gap
Whilst Government’s focus on unlocking the potential of Cambridge is welcome, the high-growth firms that can turbocharge the economy are facing their own acute challenge: insufficient availability of growth capital. Our Members are increasingly telling us that this is a key concern in Cambridge and nationally – and we are ramping up our engagement in this agenda accordingly, as a key complement to our existing thinking on infrastructure.
Business in the UK has reported a decline in the available capital to scale in recent years[2]. Some have ascribed this decline to increased risk-aversion post-pandemic – though risk appetite in the UK has never matched that of the US. Indeed the picture is variable and complex: for example, there was a substantial increase in investment in life sciences during Covid, due to the increased profile of the sector. And there are also structural factors at play – for example, prevailing low interest rates tend to drive money into start-ups rather than scaling firms.
This sits alongside the fact that investment in growth firms doesn’t happen at pace and quantum of funds here, in the same way it does in Boston or San Francisco, because the pool of funding is much lower in the UK. This is compounded by a lack of exits, meaning that money is not being reinvested and put back into the system.
Set alongside what is perceived to be a sometimes patchy understanding of the rapidly shifting landscape of asset classes in leading-edge sectors, these factors multiply to constrain investment.
This isn’t to assert that the private capital market in the UK is moribund. The total amount invested in British businesses by VC funds, co-investors and financial institutions was £9bn in 2024 – a 12.5% rise compared to 2023. And as of 2025, VC supports over 378,000 jobs across the UK – a 20% rise compared with 2023.[3]
But the pools of capital available in the UK often don’t match the scale of what is available in the US. Frequently, ideas are sold at earlier stage rather than being brought to market and creating jobs and growth in the UK. And those firms who want to scale and seek investment overseas can find themselves shifting their management and governance to where that investment can be found – leading to lost value to the UK (and ultimately, of course, a greater likelihood of these businesses listing elsewhere too). Many of these investment-led migrations happen quietly, as home-grown success stories find themselves looking abroad in order to fulfil their potential – either because the money isn’t here, or it doesn’t move fast enough.
This growth capital gap – previously estimated at £15bn per year[4] – is felt particularly acutely in places like Cambridge: rich in knowledge intensive, essentially frictionless firms which need funds to scale fast.
It should be noted that Cambridge – and the wider UK – does well in general terms at seed and Series A funding. Indeed, the UK is comparatively excellent at attracting early stage investment, with 41% of Cambridge tech companies reaching Series A compared to 40% in the Bay Area.
Though even this number masks a more complex picture, with companies founded at the University of Cambridge raising 30% of their Silicon Valley or East Coast equivalents. In these cases, a shortage of early stage capital can result in these companies not having sufficient capital to de-risk the technology underpinning the business; not being able to attract the right executive management team; or having a flat valuation round which damages the commercial perspective of early investors – and disincentivises current investors from investing early in the venture cycle. So even where we are performing comparatively well, some value does fall through the gaps.
But it’s at the growth stage that collectively we begin to trail behind substantially, where domestic funding is less available, and there is an over-reliance on foreign capital. This is where most attention should be focused.
Capital to Scale – Unlocking UK Pension Pots
The UK has the largest pension market in Europe – yet UK pension funds invest far less in venture capital, compared to Australia, Canada and the US, which contributes to our scale up problem.
To address this, seventeen of the largest workplace pension providers in the UK have expressed their intent to invest at least 10% of their defined contribution (DC) default funds in private markets by 2030, with 5% of the total allocated to UK assets.
This voluntary initiative, known as the Mansion House Accord, has been jointly led by the Association of British Insurers (ABI), the Pensions and Lifetime Savings Association (PLSA) and the City of London Corporation. It is aimed at securing better financial outcomes for DC savers through the higher potential net returns available in private markets, as well as boosting investment in the UK.
Based on providers’ current investment holdings, total pension assets in the scope of the agreement amount to at least £252 billion – and the industry expects this amount to increase over the Accord’s lifetime.
Signatories to the new commitment include Aegon UK, Aon, Aviva, Legal & General, LifeSight, M&G, Mercer, NatWest Cushon, Nest, now:pensions, Phoenix Group, Royal London, Smart Pension, the People’s Pension, SEI, TPT Retirement Solutions and the Universities Superannuation Scheme (USS). Given the quantum of funds under management by these firms, the potential for impact is considerable.
Managed well, these funds can not only increase UK investment in high-growth domestic firms – retaining more of their value here as they scale; they can also democratise access to the returns these firms will generate amongst British retirement savers, boosting pension pots.
Pension reform could unlock the UK’s innovation-led growth and go a substantial way to solving our scale-up problem. Whilst this reform is in train, it can and should move faster.
What else is happening in the system – and what more can be done?
Government is also channelling public funds into the system to promote investment in early stage and scaling firms, infusing the British Business Bank (BBB) and National Wealth Fund with additional liquidity and developing British Patient Capital. These interventions should help to ensure regional spread of investment into growing firms and create a funding escalator for companies seeking to access domestic capital at earlier stages. The increased funding announced for the BBB in the Spending Review was welcome – but could have far more impact at a greater scale and leverage more capital as a result. The formation and continued growth of the Office for Investment also indicates a desire to source funding for British firms, including from overseas.
The formal launch of the Private Intermittent Securities and Capital Exchange System (PISCES) last week forms another part of the overhaul of capital markets in the UK. It creates a more lightly regulated platform for trading equities, enabling private businesses to sell tradable shares to investors without the challenges of listing in full.
However, more can be done to address the present risk aversion in the venture market, and to increase knowledge of high growth sectors – including in tech – amongst sections of the investor community working with pension funds. Grappling with this will help to reduce non-regulatory or financial barriers to ensuring capital ends up where it can have the most impact. There is some work underway in this space – in 2024, Government launched a programme training mid-career investors through the Science and Technology Venture Capital Fellowship – the UK equivalent of the Kauffman fellowship. Further action here could prove a sound investment.
Also – and fundamentally – the policy and institutional environment would benefit from substantial overhaul. Firms need better support beyond early stage: to tackle many of the pain points that come with trying to scale a company, particularly in more innovative fields. This can take many forms – but genuine, consistent institutional support is required to overcome scaling challenges and transform the way we nurture innovation in this country. Design and delivery of a systems-led approach to supporting growing firms would be an incredibly powerful multiplier for new capital flow.
A pitch for Cambridge: What can the city region do to attract more of this investment?
Cambridge has a deserved reputation for world class science. But, while it has produced the largest number of unicorns per capita in Europe, 26 at last count – it has much more potential to nurture firms to scale to their full potential. Stronger storytelling here is key: Cambridge must promote a narrative that it is the place not just to spin out an idea, but also to bring it to market and reap the rewards of innovation. This story should emphasise the role of Cambridge as a haven for capital and talent – and a store of resilience in increasingly uncertain world. Innovate Cambridge have done significant work to shape our city’s story to the world in recent months: now is the time to amplify this.
This is in part good storytelling – but it is also a matter of creating the real world conditions to bring this to life: tangible interventions which can help grow the pot of growth capital available to scaling firms.
Cambridge is the place to think big on this subject, and look at practical solutions that can make ambition a reality. Cambridge Innovation Capital (CIC), a leading venture investor in the Cambridge ecosystem, has supported more than 44 portfolio companies through venture investment since its formation 11 years ago, and it is deeply engaged in the Mansion House process, and attracted £3.2bn of co-investments; similarly, Cambridge Angels invested £42m in 2024 in science, engineering, healthcare and IP-rich technology. Indeed, CIC recently launched a £100m Opportunity Fund – anchored by Aviva Investors and the British Business Bank – to support companies that are growing and scaling.
Could even more be achieved by pooling an even bigger venture pot for Cambridge firms, drawing on international as well as sovereign sources including more pension pots, with a targeted remit to fund high growth firms in the city region? Innovate Cambridge are amongst those organisations looking to prepare the pipeline and getting the ecosystem here ready for funds – looking to increase the number of startups, and showcasing the ambition, talent and expertise housed in Cambridge. How much more powerful would that proposition be if it was to be backed by a significant increase in available capital designed for Cambridge?
Creating the Wider Conditions
Cambridge Ahead has long advocated for infrastructure projects and investment to keep pace with the city region’s growth: this is ever more vital when seeking to create the right environment for innovative firms to flourish beyond early stage. Transport, energy, water, soft and social infrastructure and quality of life/cost of living concerns remain paramount; but of similar importance is the creation of the right physical places for these firms to scale at pace, including science parks and scaleup square footage, rather than just wet labs for early stage work. Cambridge Ahead’s work on business parks and clusters, undertaken with the Centre for Business Research, is set to report this summer and should make a meaningful contribution to thinking in this area.
This speaks to the wider ecosystem which is fundamental to keeping growing firms in Cambridge, encompassing talent, real estate, affordability and connectedness to other parts of the UK, not just London – making it easy to grow and stay.
In a similar vein, creating places where investors and companies can meet, interact and develop relationships – focal points for interaction – is a part of the puzzle. The University of Cambridge’s plans for a National Innovation Hub could have a significant impact here.
That said – whilst the University and the depth of research and talent it produces is a unique and powerful asset to the city, the story of Cambridge’s investability is not confined to its work, huge though its impact is. So much valuable activity happens across the place – from individual startups, rooted in a great idea, to deep tech and bioscience firms bootstrapped and spun out of consultancies. Cambridge’s public narrative to investors should embrace the power and critical mass of the University, whilst also reflecting the diverse sources of innovation the city can boast.
This is all part of creating a culture in Cambridge which is inclusive and accessible, and where scaling and growth is the default rather than the exception. This requires a longer term move away from habitual early exit towards a sense of companies being in and of Cambridge, able to achieve all they need here and other parts of the UK with the absorptive capacity to nurture growth.
Risks – and the Risk of Not Taking Opportunities
Returning to investment of pension funds – it is important initial investments are successful and guide capital towards later end of VC – where science is done and where the concept of growth equity investment in illiquid assets is most easily proven.
To this end, it is important that the Accord’s signatories are fully behind the spirit and intent of the idea. Not to say this is easy: investing in growth equity is demonstrably harder than placing 5% of these funds into private credit, or infrastructure investments which would have been built anyway. The Government has retained a reserve power to mandate funds to buy certain assets, including British investments; but some amongst the sector baulk at this, asserting that pension scheme members have to be the decision makers.
However, in recent days we have seen reports of one fund considering drastic reduction of exposure to British investments in favour of international markets, suggesting something may need to be done to motivate funds to invest. Whilst the Chancellor has indicated that she does not believe mandating British investment will be required, it may be necessary to encourage and support funds to fully engage with UK growth equity. It is, after all an opportunity for them – one which is otherwise likely to be taken by their US and Canadian counterparts, leaving UK pension returns lagging as a result.
A Strategic Priority for Cambridge Ahead
This is a priority area for Cambridge Ahead. Working with partners across the city region, including investors, Innovate Cambridge, national and local government, and arms-length bodies like the BBB, we want to convene the system around Cambridge – and the wider OxCam Corridor – and their role in delivering on the growth potential of additional investment. This is a pivotal opportunity to change the profile of Cambridge as a place where scaling is the norm rather than the exception; and to ensure we can play our fullest part in the UK’s growth, to the benefit of people in our city region and across the UK.
[1] 2,269 university spin-out companies recorded in new register | HESA
[2] Venture Path data compiled from DealRoom and Sifted
[3] ‘Venture Capital in the UK 2025’, BVCA
[4] ‘The Future of Growth Capital’, Scaleup Institute, Deloitte and Innovate Finance
