UK startups face a critical hurdle - the funding gap between Seed and Series A. VCs can bridge this gap by seeking commitments from specific LPs with mandates for this stage, including British Patient Capital, whose core mission is to solve the scale-up challenge, and European Fund-of-Funds that back managers focused on this intermediate stage.
What is the Seed-to-Series A funding gap in the UK?
The scale-up gap is a well-documented challenge in the UK venture ecosystem. It refers to the difficulty that promising companies, which have successfully raised a Seed round, face when trying to secure Series A funding required to scale. This intermediate funding void is a major barrier to creating global tech leaders from a UK base.
Which UK LPs have a specific mandate to solve this problem?
There are a few key players who are specifically focused on providing the capital to bridge the gap between Seed and Series A funding rounds.
- British Patient Capital (BPC): As the UK’s largest domestic VC investor, BPC’s mission is to address the UK’s scale-up funding gap, and the Seed-to-Series A transition is a key part of it. A core part of its strategy is to anchor and support UK-based VC funds that have the capital and expertise to write the larger cheques that get companies from Seed to a successful Series A and beyond.
- European Fund-of-Funds (FoFs): Pan-European FoFs like Isomer Capital are key LPs for funds operating at this stage. They build diversified portfolios of VC funds and often have specific mandates to back managers who are proven experts at helping companies navigate the post-Seed, pre-Series A journey.
- Large, multi-stage VCs: Some of Europe’s largest venture funds can also act as LPs in smaller, specialist Seed funds. This gives them an early look at promising companies and creates a natural pipeline for their own larger, direct investment funds at the Series A stage and later.
How can a VC fund best position itself to attract these LPs?
To secure capital from LPs focused on the Seed-to-Series A stage, a VC manager must demonstrate a clear and credible strategy for actively bridging this gap.
- Show a value-add playbook: LPs need to see that you do more than just write cheques. You must have a proven, hands-on playbook for helping Seed-stage companies with the specific challenges of scaling, including hiring senior talent, refining product-market fit, and professionalising operations to be “Series A ready.”
- Demonstrate access to Series A investors: Your fund must have a deep network of Series A and B investors in both Europe and the US. This will reassure LPs that you can successfully syndicate your best companies and help them raise follow-on capital.
- Have a concentrated portfolio strategy: Funds that successfully bridge this gap often have more concentrated portfolios. This allows them to reserve sufficient follow-on capital and dedicate the necessary time and resources to help their portfolio companies make the leap to the next stage.