There is nowhere near enough venture capital in the UK. Here is how we can change that

By James Codling, Co-founder and Chief Executive of VentureFounders

It’s no secret that the UK is still woefully poor at supporting companies as they scale. While Britain is undoubtedly very good at encouraging entrepreneurs and startups, these companies will need more funding further down the line to continue being successful. This is where we flounder: angels run out of money, and there’s no wave of VC cash coming towards firms that are scaling up. This presents a challenge.

That said, UK VC investment across the fintech sector is up 37.4 percent year-on-year, according to Innovate Finance’s latest report. And analysis we’ve done at VentureFounders corroborates this good news. In the first half of 2016, 18 deals raised £79.2m for venture and growth-stage businesses; this year, it was 25 deals to the tune of £305m. In other words, UK investment into UK firms that have moved beyond the seed funding stage is up by 285 percent from last year, with the average amount put into each deal up 177 percent.

But the reason that increase is so large is symptomatic of the UK having relatively few companies that reach this level – which means that a small number of funding rounds can make a material difference. So, unfortunately, this isn’t a complete picture of health. Venture and growth firms are the businesses that have persistently fallen victim to funding gaps. To remind ourselves of how important these companies are to the country: if the number of scale-ups increased by just 1 percent, it’d provide a potential £38bn boost to the economy in the next three years.

And it’s not just UK money bolstering these firms. All five top deals in the UK in the first half of this year – Atom Bank, Funding Circle, Monzo, Currency Cloud and Zopa – were led by foreign VC firms, ranging from California’s Accel Partners, GoogleVentures, BBVA and India-headquartered Wadhawan Global Capital. There is a simple reason for this, and it brings us back to the original point: firms can’t find the money they need in the UK.

Things are improving in the UK VC industry, but not at the pace they need to: there’s a significant lack of series A and B funding, there aren’t enough VCs, and there’s not enough competition. We are at the beginning of a big change that desperately needs to happen. Let’s improve competition, encouraging more people to enter the industry and to raise funds. Let’s also support state-backed initiatives like the British Business Bank, along with private efforts to supply credit and advice to our most promising SMEs. It could take a decade to alter the structural issues with VC funding, but we do have ways forward.

James Codling is co-founder and chief executive of VentureFounders, the leading equity investment platform.