What is patient capital?

Patient capital has a longer time horizon than traditional private equity and venture capital. This long-term investment approach is being used by funds like BGF to better support entrepreneurs up and down the country. Read on to learn more about patient capital investment, including what it is, where to find it, and how it could benefit your business.

Understanding patient capital investment

Patient capital is a term used to describe long-term investment, in the form of debt or equity, where sustainable growth is prioritised alongside financial returns. Patient capital strategies vary between funds and business sectors, but typically see investments maintained for many years before exiting. During this time, patient capital funds may offer additional support to investee businesses in the form of follow-on funding, to help accelerate their growth and increase return on investment (ROI).

Sources of patient capital

The patient capital model is becoming increasingly popular, as it continues to prove its effectiveness, and the need for long-term, flexible funding options for startups and scaleups remains.

One investment fund to use the term is British Patient Capital, a commercial subsidiary of the government-owned British Business Bank. It aims to bridge the late-stage funding gap, by investing in UK-focused venture fund managers and through its co-investment strategy. The Chancellor recently extended the initiative’s mandate from 2028 to 2033. British Patient Capital was established in 2018, in response to the UK Government’s Patient Capital Review, which looked at the barriers that growth companies face when trying to access long-term capital.

The Patient Capital Review found that, whilst “the UK entrepreneurial ecosystem provides significant financial support at the earliest stages of starting a business”, innovative firms were struggling to scale-up due to a lack of patient capital, particularly outside of London and the South East. Following the review, the Financial Conduct Authority (FCA) explored how regulatory changes might be used to encourage more patient capital investment, but found few significant barriers facing professional investors.

For over a decade, BGF has been working to address the patient capital gap. Having launched in 2011, we are now the most active equity investor into UK scaleups. BGF provides long-term, minority equity investments to businesses in the UK and Ireland, acting as a junior partner alongside management teams. Exits are driven by management teams, with BGF providing advice and support. BGF does not insist on inflexible exit schedules or impose drag-along rights on new investee businesses. Through our patient capital investment model and regional network, we support high-growth businesses across the country to fulfil their potential.

Other patient capital investors operating in the UK include several sovereign wealth funds and pension funds, as well as Acumen, a global impact fund that invests in businesses working to tackle poverty. While patient capital isn’t restricted to ESG or impact investing, it is a common investment strategy for funds focused on delivering a positive impact for people and the planet, alongside economic growth and financial returns.

Why is patient capital important for entrepreneurs?

Data from Beauhurst indicates that, while seed-stage funding in the UK has risen every year for the past decade, the number of equity investments deployed to venture and growth-stage businesses declined in 2022. Early-stage deals are crucial for the future of the innovation ecosystem, but it’s these later-stage (typically much larger) deals that founders and management teams can use to continue scaling their businesses into global market leaders.

Patient capital helps small businesses to unlock their growth potential, by enabling them to invest in infrastructure and R&D, make senior hires, expand into new markets, and so on. Long-term partnerships with investors also provide opportunities for significant value-add, such as technical or sector expertise, mentoring, and other non-financial support to maximise growth.

Securing patient capital also reduces the pressure for an early exit. In turn, this means founders can prioritise sustainable business growth and careful exit planning, instead of falling prey to unrealistic valuations, rushed exit negotiations or frequent funding rounds.

More patient capital is needed to support entrepreneurship in the UK and Ireland, in every region, and across all sectors, from cybersecurity to healthcare. That’s where we come in. We offer patient capital investment that’s different by design. If you’d like to find out more about BGF’s patient approach, please contact our team today.

The information contained in this article is for general information and use. It does not constitute any form of advice and is not intended to be relied upon in making any investment decision. Independent advice should always be sought as to whether a particular transaction is suitable having regard to your personal and financial circumstances.