The European Investment Fund (EIF) has been key to the creation of new funds in the United Kingdom (UK) for many years. A subsidiary of an EU agency, the well-funded EIF was an early investor in a number of UK management company funds, including repeat investors in the healthcare and life sciences sector such as Abingworth Bioventures, Sovereign Capital and Merlin Biosciences. It also has significant commitments to more established executives entering healthcare, such as its commitment to Advent's first life sciences fund. It is a repeat investor in UK integrated funds with healthcare exposure including CBPE, NorthEdge and Livingbridge.
EIF support also has a multiplier effect on fundraising, as the validation demonstrated by the EIF's commitment often encourages other limited partners to commit to the fund. This effectively “crowds in” local and foreign private sector capital. Abingworth Bioventures' third fund is the last UK fund to receive investment from an EIF (details can be found on Preqin), with additional investment from pension funds, foundations and insurance companies in the US, Germany, Switzerland and the UK.
Overall, these funds have generated good returns and the EIF scheme has therefore been a net contributor to EU coffers. EIF support enables new managers to raise first and second funds, after which they often have a sufficient track record to continue raising institutional capital without the need for state sponsorship from the EIF.
Since Brexit, the UK government has tried to fill the gap left by the EIF, but one key area remains unresolved
From the date of Brexit, the UK will no longer be under the jurisdiction of the EIF. Indeed, when Brexit became possible, commitments to the new UK fund tapered off. The UK government's solution was to develop an alternative to the EIF in the form of the British Business Bank (BBB), which was first launched in 2014. This has been partially successful, and the BBB has proven to be very active in the life sciences sector. BBB has funded three early-stage funds involved in the UK healthcare sector: Zinc VC, Longwall Ventures and Epidarex Capital.
But the change in funding from EIF to BBB was accompanied by a change in strategy, from investing in the entire private equity space to specialized early-stage venture capital (VC).
That may change as BBB grows – it has only been around for 11 years and continues to develop its strategy in partnership with UK plc. EIF is 20 years old – founded in 1994, it is now 31 years old. The EIF is larger and better funded than the BBB and is part of the European Investment Bank (EIB). The European Investment Bank has a history of nearly 70 years, has 4,273 employees, and a balance sheet of 556 billion euros in 2024.
Despite its smaller organizational size and history, the BBB has invested more in private equity markets than its EIF counterpart in recent years, adjusting for the size of the relevant economies (UK vs. EU). However, the UK government’s decision to prioritize venture capital, to the exclusion of acquisitions and growth, has left a gap in the funding landscape for UK healthcare companies beyond the early stages. New healthcare buyout investors not only miss out on government support for first funds, but also the international capital that such support often attracts.
This leaves a funding gap – and an opportunity for private sector investors to step in
As a result, the UK has lost a core national sponsor of new private equity managers in healthcare acquisitions and growth capital, complicating an already difficult funding environment. This exacerbates the funding gap prevalent among UK businesses seeking funding following early-stage venture capital investment. It is these small acquisitions and growth-stage investments that fuel the growth of small and medium-sized enterprises, often referred to as the growth engines of Western economies. It is well known that managers achieve their best returns in their first one or two funds. Will the doors be opened to risk-taking private sector healthcare investors to seize opportunities missed by the UK government post-Brexit and reap strong returns from new managers eager to raise their first healthcare buyout funds but struggling to find an anchor?
Photo: Huang Yuliang, Getty Images
David Jolly is an investment director at Weight Partners Capital, a UK private equity firm investing in lower middle market healthcare services businesses in the UK, where he leads new deal work and supports operational improvements in portfolio companies. David is a member of the Investment Committee and serves on the Board of Directors of several WPC portfolio companies. Prior to joining the firm in 2011, David worked in the private investments team at the Canada Pension Plan Investment Board in Toronto and on operational change projects at Credit Suisse in London. David holds a bachelor's degree in commerce from Queen's University in Canada and a master's degree in finance and private equity with honors from the London School of Economics.
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