In 2016, Milltrust pioneered investing in university spinouts from the UK’s leading research institutions. With an initial £10 million investment into Roslin Technologies, we sought to develop the first dedicated incubator at the University of Edinburgh’s Roslin Institute – home of Dolly the Sheep, arguably the UK’s most iconic scientific achievement of the late 20th century. Soon after, we backed Oxford Science Innovations (OSI) and Cambridge Innovation Capital through our investment in Pragmatic Semiconductor, one of CIC’s flagship portfolio companies. As the first firm to systematically invest across the entire UKRI-funded university ecosystem, we supported breakthrough scientific discoveries, including early cancer detection technology from Newcastle University, advanced antibody testing platforms from the University of Exeter, and sustainable circular-economy animal feed derived from black soldier fly larvae at the University of Edinburgh.
We achieved our first full portfolio exit in 2022 – a year when traditional equity and bond markets were being decimated – having more than doubled investors’ capital over five years.
Yet despite the UK producing a wealth of world-leading scientific research, there remains a deep-seated aversion to investing in it. This begs the question: why? What have we got so wrong in building a venture capital community that is long on self-promotion but short on actual capital deployment?
Three structural issues stand out:
1. Flawed fund structures in university venturing
A persistent preference for closed-end company structures – such as Oxford Science Enterprises (formerly OSI) or Northern Gritstone – has been a major impediment. These vehicles are typically “long cash” from inception, holding large cash balances that drag on returns. In venture capital, where investors rightly expect outsized gains to compensate for illiquidity and risk, excess cash is toxic to performance – especially when capital is effectively locked up for a decade or more. Moreover, these corporate structures bear all operating costs (staff salaries, offices, overheads) directly on the balance sheet, whereas a traditional limited-partnership fund would cover such expenses from the management fees. The result is a permanently higher cost base and structurally lower returns.
2. Institutional inertia among UK pension and insurance funds
Beyond the vital angel investor community – whose generous tax incentives are gradually being eroded – the UK’s major pension funds and insurers remain stubbornly unwilling to allocate meaningfully to venture capital. The consolidation of local authority pension schemes into mega-funds (e.g., the Local Pensions Partnership or Border to Coast) has created institutions too large and too process-heavy to engage with the smaller, specialist managers that dominate UK early-stage venture.
The Lord Mayor’s Mansion House Compact of 2023 was a welcome and widely supported initiative to reverse this trend, with almost every major UK pension and insurance group signing up to increase allocations to unlisted growth companies. Regrettably, actual capital flows since then have been derisory.
Products such as Long-Term Investment for Sustainable growth Funds (LTIFS) and Long-Term Asset Funds (LTAFs) – launched by groups including Schroders and LGIM – have channelled some institutional money into “patient capital”, but typically by offering bond-like wrappers that pay a modest coupon while committing only a tiny fraction of overall assets to genuine venture exposure. In many respects these structures echo the failed Woodford model: ostensibly liquid vehicles that gradually increased exposure to illiquid private assets, only to become vulnerable when market sentiment shifted and the liquid sleeve was sold down.
3. Misallocated taxpayer capital via British Patient Capital
Post-COVID, after the widely criticised British Business Bank programmes (Future Fund and CBILS bounce-back loans) saw billions lost to hasty lending and outright fraud, many hoped the new Labour government’s proposed National Wealth Fund would trigger a root-and-branch reform of the BBB and its venture arm, British Patient Capital (BPC).
Instead, more than half of BPC’s £3 billion+ of taxpayer-funded capital continues to be allocated to overseas fund managers – many of which maintain only a token UK presence in order to secure an allocation. That we cannot assemble a world-class, in-house team to invest this money directly into British technology-led start-ups – and instead outsource it through an expensive fund-of-funds layer – remains inexplicable and deeply frustrating.
