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One of the UK’s leading tech investors has urged pension funds to increase backing for British scale-ups, warning that too much of the upside from high-growth firms is flowing overseas.
Saul Klein, co-founder of venture capital firm Phoenix Court, said that the UK has become Europe’s leading hub for “thoroughbreds” — fast-growing tech firms with revenues above $100 million — but suffers from a chronic lack of domestic growth capital.
According to Dealroom data, the UK now has 191 venture-backed thoroughbreds and more than 600 companies generating revenues above $25 million. By contrast, only 20 per cent of the funding for these businesses comes from UK investors, leaving 80 per cent of the returns to overseas backers.
“For over a decade, venture capital has been gripped by unicorns,” Klein said, referring to start-ups valued at over $1 billion. “But the real test of a company is not valuation, it is fundamentals. The UK now has more than 800 scale-ups generating over £25 million in revenues — more than France, Germany and the Netherlands combined — making us second only to Silicon Valley.”
Companies highlighted as UK thoroughbreds include Revolut, Monzo, Tide and Multiverse. In earlier eras, Klein noted, firms such as Monzo and Revolut would already have listed on the public markets. Today, he argued, investors must view long-term growth as the true benchmark of success.
Europe is estimated to lag the US by $57 billion in later-stage growth funding, according to Dealroom. Klein said UK pension funds had a unique opportunity to fill this gap, both to boost domestic returns and to build long-term value for savers.
Chancellor Rachel Reeves is already trying to encourage pension schemes to invest in private companies through her Mansion House accord. Klein said reforms could unlock as much as £200 billion of committed capital for scale-ups, with the British Business Bank now operating at “the scale of a sovereign wealth fund”.
“With the chancellor’s reforms, there is significant upside if local authority funds reach equivalent levels of commitment,” Klein said. “Yet only 20 per cent of the capital backing UK scale-ups is domestic. When these firms succeed, 80 per cent of the upside flows overseas to fund pensions and infrastructure abroad.”
Klein, whose firm Phoenix Court backs 54 UK scale-ups, said pension funds should see British tech as the engine of jobs, productivity and growth. “Britain must back the very businesses that are creating jobs, driving productivity and powering its future,” he said.
The warning comes as Reeves faces pressure to balance the books without stifling growth in the autumn budget. For many in the industry, unlocking domestic capital for UK scale-ups is seen as critical to ensuring Britain remains globally competitive in technology and innovation.
