The U.K. tech scene has long been centered around the south of the country, with London often being equated with the entire U.K. However, a recent House of Commons Committee report highlighted the uneven distribution of venture capital (VC) investment across the country, with the majority of funding being funneled into the London, Oxford, and Cambridge region. In an effort to address this imbalance, Par Equity, a venture capital firm based in Edinburgh, is launching a £100 million fund to support early-stage startups in the north of the U.K.
Key Takeaway
Par Equity, an Edinburgh-based venture capital firm, aims to address the VC investment imbalance in the U.K. by launching a £100 million fund that focuses on early-stage startups in the north of the country. By leveraging the rich academic heritage and talent pool in cities such as Manchester, Leeds, and Edinburgh, Par Equity sees investment opportunities at sensible valuations. The launch of their first institutional VC fund, Par Equity Ventures I LP, underscores their commitment to sectors like climate tech, industrial tech, and health tech across the Midlands and beyond, with a focus on strong intellectual property.
The Case for Investing Outside the “Golden Triangle”
While London, Oxford, and Cambridge have prestigious academic institutions and attract top talent, other regions in the U.K. boast excellent universities and a wealth of academic credentials. Cities like Manchester, Sheffield, Liverpool, and Leeds, as well as Edinburgh, have long-standing manufacturing and engineering sectors and are home to world-class research and development departments. Par Equity sees the potential in these regions, citing their rich heritage, academic institutions, and access to talent and innovation at reasonable valuations.
Par Equity’s managing partner, Paul Munn, highlights the success of their investment in an advanced materials business based in the north, which had a significantly lower valuation compared to its high-profile competitor in the “golden triangle.” Despite this, Par Equity’s portfolio company has seen key members of staff leaving the competitor and seeking to join their team. Munn believes that the north of the U.K. offers compelling investment opportunities with sensible valuations.
Par Equity’s Journey and Focus
Par Equity’s investment journey began in 2008 with an innovation fund consisting of angel capital. Since then, they have raised capital through various channels, including their own angel community, the Regional Angel Program initiated by British Business Investment, and Scottish Enterprise. In total, Par Equity has invested £167 million in 78 startups, encompassing 423 individual transactions and follow-on investments.
The launch of Par Equity Ventures I LP marks their first institutional VC fund. The Scottish National Investment Bank and British Business Investment lead the fund’s capital, with additional contributions from the Strathclyde Pension Fund. The initial close of the fund stands at £67 million, and Par Equity aims to invest in tech companies with high growth potential across the north of the U.K. They will focus on sectors such as climate tech, industrial tech, and health tech, leveraging their previous success in the health tech space, where their portfolio company Current Health was acquired for $400 million by Best Buy in 2021.
Par Equity will primarily concentrate their investments in the Midlands and beyond, including Scotland and Northern Ireland. While their central office remains in Edinburgh, they have recently established support hubs in Leeds and Sheffield to strengthen their regional presence.
Capitalizing on Changing Dynamics
Traditionally, founders seeking startup opportunities gravitated towards the South, particularly London, due to access to capital and talent. However, the remote work revolution accelerated by the global pandemic, coupled with changes in the macroeconomic landscape, has prompted a reevaluation of where talent chooses to reside. Par Equity believes that now is an opportune time to intensify investments across the entire U.K.
Munn points out that the north of the U.K. is home to half of the country’s best universities, many of which have world-class science, technology, and engineering departments. While the allure of London remains strong, there has been a shift in recent years, with more graduates choosing to stay in the regions and work locally due to the rise in living costs and the impacts of COVID-19.
