Reform corporate venturing or risk losing millions in foreign direct investment

Corporate Venturing in the UK concludes that while the UK remains ahead of its European rivals, its position is fragile with countries such as France quickly gaining ground by doing more to encourage innovation and ‘deal flow’. 

It concludes that global competition to attract corporate venturing is intensifying and that political ambivalence towards this issue urgently needs addressing.

View the Corporate Venturing in the UK report

The UK risks losing millions of pounds in foreign direct investment unless the government does more to create the right conditions in which corporate venturing (CV) can flourish, according to a report published by the RSA.

The report found that since 2000, a number of corporations have closed or spun out their UK corporate venturing bases, including publisher International Data Group. It argues that it’s crucial the UK encourages strong deal-flow in the right sectors and creates a friendly environment for investors.

The report shows that corporations remain well capitalised with $1.5tn of cash sitting on the biggest European companies’ balance sheets. It calls for the UK Government to introduce a forum designed to encourage UK based executives to consider starting or expanding their venturing programmes.

The Government should also consider introducing an innovative co-investment scheme to aggregate medium-sized corporations interested in a specific sector. The report recommends the Government also introduces a series of fiscal measures to incentivise or remove barriers to CV including:

• Creating an accelerated ‘qualifying venture investment allowance’ for corporations to reward or recompense risk-taking by corporations in UK ventures.

• Encouraging ‘serial venturing’ by changing the capital gains rules so that disposal could be deferred if profits are reinvested in further qualifying corporate venturing.

• Allowing overseas companies investing in UK-based risk assets to use offshore cash with little UK taxation and the ability to repatriate the money if the investee sets up a subsidiary in the UK.

• Putting corporate venturing on the same tax level as independent venture capital funds.

• Encouraging corporations to be limited partners in independent venture capital funds by allowing corporate limited partners to be as tax exempt as pension funds, with investments classed as outsourced R&D because of the length of time from commitment to potential returns.

The report calls for the re-introduction of Corporate Venturing Scheme that was introduced by Labour in 2000, with a high proportion of relief against corporation tax – between 30 percent and 50 percent – and increasing the size of a qualifying target company from £7m to £25m.

Commenting on the report, the author James Mawson said:

"A growth in corporate venturing would encourage inward investment, boost jobs and ultimately GDP. However, this won’t happen in the UK by accident. The Government must do more to provide the right conditions that will encourage talented investors and entrepreneurs and larger business to come to the UK. In designing and balancing new fiscal and regulatory rules, we must create a playing field on which corporate venturing can compete and win."

Corporate Venturing in the UK found that:

• For the first time corporate venturing has started to gain traction both for companies and entrepreneurs at the start of the economic cycle.

• Corporate Venturing is on the rise. In 2011, more than 550 corporate venturing units from around the world agreed more than 1,100 deals, including exits, as part of a broader consortia investing over $26bn.

• Companies with corporate venturing units have outperformed peers without a minority investment strategy; both by a company’s market-to-book-value ratio and its innovation capacity.

• Of the 55 corporate venturing deals in the UK last year, 16 were in the healthcare sector, followed in order of popularity by IT, media, services and clean-tech.

• While the UK has 37 active corporate venturing units from local parents, Germany has 31; France has 29 and Italy 8. There were slightly more deals done in Germany than France with 39 and 14 completed last year (and none in Italy) – but the UK remains in the lead with 55 deals completed last year.