Long-term Investment For Technology and Science (LIFTS) initiative: request for feedback

On March 15, 2023, the Department of Business & Trade and the HM Treasury launched a joint consultation in connection with the government’s so-called LIFTS (Long-Term Investment for Technology & Science) initiative. The initiative aims to promote large scale institutional and pension scheme investments in venture capital funds that primarily invest in UK science and technology businesses, particularly start-ups coming from UK universities. The government would thereby support these funds with up to £500 million.
In their consultation, the two authorities now seek general feedback on
(1) possible design options to set up the new support scheme, including the setup of new (fund) structures;
(2) eligibility criteria for participating venture capital funds; and
(3) eligibility criteria for qualifying investments.
#### Design options
As regards the design options, the authorities consider two alternative options:
1. the so-called „Investment collaboration and information exchange“ which would rely upon the fund structures of the commercial company British Patient Capital (BPC). BPC is a subsidiary of the British Business Bank (BBB) of the UK government and a key institutional investor in UK venture capital businesses. Investments could thereby be made directly or via new sub-funds. This option would involve a „co-investment agreement where an institutional investor and BPC would agree to co-operation in respect of certain investment opportunities with a view to investing alongside each other“.
2. the so-called „Pari passu co-investment“ which would involve the creation of new (commercial) investment funds such as LTAFs (Long Term Asset Funds) by institutional investors or other capital management firms in which the government would co-invest via the BPC.
As regards the second option, the authorities would also consider „co-investment with capped returns for government“ which could be implemented via different share classes of the funds and which would provide for a diversified distribution policy among shareholders.
Finally, the authorities are also considering a so-called „management fee offset mechanism“, the details of which would have to be consulted on at a future point in time. Nonetheless, both authorities state that it would involve a cut-down on the management fees of institutional investors, particularly pension schemes.
#### Eligibility criteria for participating venture capital funds
Firms and fund managers seeking to participate in the new initiative would have to meet the following qualification criteria:
– the firm must have a permanent office in UK (or open such);
– there must be – at the minimum – one full-time partner „located at that office during the life of the proposal“;
– management firms must have at least one institutional investor
– with a permanent office in UK;
– which commits a „significant“ investment amount; and
– which has material control of assets from UK savers, clients, policyholders, or individuals.
#### Eligibility criteria for qualifying investments
The authorities would consider the following definition for „qualifying investments“:
Figure 1: Definition of Qualifying Investments

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The specific questions raised by the authorities in this context are summarized on page 17. The consultation closes on April 28, 2023.