Following the publication of ‘Venture Capital in Physics Deep Tech' report last week by The Institute of Physics (IOP) about unlocking finance for game-changing UK innovation and growth we recommend five follow on actions to address the barriers outlined…

(1) Barrier One: Physics deep tech does not transition from technology to product-led early enough
IOP Recommendation: "The government considers physics deep tech in the Transforming Public Procurement programme design and implementation, to bring to bear the positive effects of government procurement for physics deep tech businesses. For example, that Contracts for Innovation (formerly SBRI), which is delivered by Innovate UK, provides more opportunities for physics deep tech businesses to deliver innovation to the public sector, de-risking their technology."

FIVe Action: Through FIVe and FISC, we have seen huge success in the use of Contracts for Innovation to stimulate demand for green products. We agree with this recommendation to indicate more demand signals and create opportunities for innovation deployment.


(2) Barrier Two: Development pathways in physics deep tech do not follow a one size fits all route
IOP Recommendation: "The business and investor community work together to map commercialisation and valuation pathways, including in clean tech, semiconductors, photonics and quantum, to improve understanding of the different development pathways in physics deep tech. For example, to support this, the IOP will seek opportunities to work in partnership to convene businesses and investors in physics deep tech. The extent to which the Science and Technology Venture Capital Fellowship programme is meeting the needs of physics deep tech investors should also be reviewed."


FIVe Action: FIVe acts as a critical bridging partner between the innovator, industry and investor communities to bring a common language, map pathways and create value. We see this role as necessary in deep-tech and hard-tech specifically to create the right environment for early partnerships.


(3) Barrier Three: Lack of familiarity with physics deep tech amongst limited partners
IOP Recommendation: "The IOP showcases successful businesses to raise the profile of physics deep tech amongst Limited Partners and help venture capitalist firms raise funds. To support this, the IOP will seek opportunities to work with partners to elevate physics deep tech and physics deep tech businesses, including raising the profile of IOP Business Award winners to the venture capital community. For example, through IOP supporting the Department for Business and Trade's Venture Capital unit with their deep tech showcase events, physics deep tech businesses could better link international venture capital investors to UK opportunities."

FIVe Action: Visibility is hugely important when Founders have to be so frugal with their time. Convening partners like IOP and FIVe can provide a much needed spotlight, delivering targeted introductions and raising profiles.


(4) Barrier Four: Alternative sources of finance in physics deep tech do not work effectively alongside venture capital
IOP Recommendation: "The government reviews and strengthens the financial support available for physics deep tech to make sure that grant, equity and debt-based instruments are working effectively alongside venture capital to help grow physics deep tech businesses. For example, by introducing dedicated physics deep tech Investor Partnerships via Innovate UK to ensure that grant matched venture capital investment is available for physics deep tech businesses."

FIVe Action: A number of blended finance solutions are require to scale all hard-tech companies. We will work closely with Innovate UK and IOP to ensure that the Foundation Industries and Sustainable Materials ventures are included within such programmes, alongside our consultations with the Green Finance Institute about wider support schemes.


(5) Barrier Five: Lack of large, late stage and trusted investors in physics deep tech
IOP Recommendation: "The government encourages greater participation of international investors, corporate venture capital investors and defined contribution pension funds in physics deep tech to stimulate more later-stage capital for businesses. For instance, through assessing to what extent the needs of physics deep tech will be reflected in recent initiatives to support later stage participation in access to finance for technology: including, the Pension Investment Review, British Growth Partnership and National Wealth Fund focus on impact investments."

FIVe Action: We are already consulting on these programmes through the Green Finance Institute, as both industrial decarbonisation and advanced sustainable materials must be on the agenda and spotlighted to bring in international investors. FIVe is already building a thriving community of international investors and we are highlighting these blended finance opportunities.

Published: 02-12-2024