There’s an ongoing debate in the PXN offices, Dave Foreman tells me on a video call from his base in Manchester, about what to call a new “golden triangle” of the north of the UK.
The three cities that make up the existing triangle — London, Oxford and Cambridge — bring in more VC funding, see more deals closed and have universities which spin out more companies than their peers outside of it.
The capital has always enjoyed a disproportionate flow of VC funding. London brings in 51% of venture capital while the north of England, Scotland and Northern Ireland bring in a combined 20%, according to a report by the British Venture Capital Association.
But PXN — formed last month with the merger of Manchester-based Praetura Ventures, which Foreman founded, and Edinburgh-based Par Equity — wants to change that dynamic.
Praetura has built out of a headquarters in Manchester, while Par Equity has its base in Edinburgh; the “next obvious landing spot” for PXN is Leeds, Foreman says, adding they’re the three cities it sees forming the north’s golden triangle.
So who’s come up with the best name so far? “[Marketing director] Ben Davies always comes up with the best ideas, but we’re still just toying with things on that.”
A new golden triangle
The two firms merged in June — a deal still subject to regulatory approval — to form a £670m investment vehicle focused on the north of England, Scotland and Northern Ireland looking to close the gap with London, Oxford and Cambridge.
But that won’t be easy. The three cities lead the charts for funding total and deal count so far this year in the UK (as they do most years), according to Sifted data.
There have been 517 deals in London, 36 in Cambridge and 19 in Oxford; there have been 20 in Manchester, 20 in Edinburgh and 14 in Leeds. Other northern cities like Liverpool, Sheffield and Newcastle are further down that list.
While Manchester, Edinburgh and Leeds have kept pace with Oxford for deal count, overall funding shows the gap PXN needs to help fill. Startups in London have raised nearly £7bn so far this year, according to that same Sifted data; in Cambridge they’ve raised £380m and in Oxford £252m. In Leeds it’s £47m, in Edinburgh it’s £40m and in Manchester it’s £20m.
Sizeable deals are missing from the north. Wakefield-based Aegis Energy, which is building a network of clean energy hubs, raised the biggest deal for a northern startup so far this year when it bagged £100m in January. But deals of that size are rare. Meanwhile, the biggest round in London the biggest round so far this year has been the £450m raised by Isomorphic Labs. In Cambridge surgical robot company CMR surgical raised £150m in April, and in Oxford medtech OrganOx raised £109m in February.
“There are definitely less big rounds that happen in the north of the UK,” Foreman says. “You don’t see pre-seed companies raising £10m, which you do a bit in London and definitely do in San Francisco; you don’t see the doubling down in terms of a business that’s doing pretty well going out to raise £50m at a £400m valuation.”
Is that because those companies don't exist? “Possibly not” Is it a lack of ambition? “Definitely not […] I would also say it's not because there's a lack of talent and skill or entrepreneurial flair.”
There just aren’t that many of those types of deals in the UK outside of the golden triangle of Oxford, Cambridge and London, he says.
'Success stories'
PXN aims to maintain — and combine — Par and Praetura’s earlier investment theses.
Par Equity remains focused on early-stage B2B investments in healthtech, climate tech and industrial tech, driven by tech like robotics, photonics, advanced materials and artificial intelligence, whereas Praetura specialises SaaS, fintech and healthtech businesses.
I point out that there are only two startup unicorns in Europe that are based in the north of the UK: Manchester-based duo Castore, a sportswear company, and Matillion, a data engineering company.
Foreman points out that that’s too narrow a scope to judge the success of business in the north.
“I think you’re missing things like [online electrical retailer] AO, which listed at £1.2bn, missing things like The Hut Group,” he says. “There’s one argument to say there’s a dearth [of unicorns], but great businesses have been founded in the north.
“I think what you've got across that venture space is a lot of the businesses that might be growing in the north get acquired before they get to that point,” he adds. “And perhaps that's a little bit of ambition, perhaps that is a bit of pragmatism.
“I think for a founder of a tech startup in the north of the UK, you need to see more success stories so you can kind of go ‘Yeah, we might be able to stay private’.”
The sort of success stories he’s on about that lead to a flywheel effect are evident elsewhere in the country. Chip maker Arm is credited with boosting the tech scene in and around its birthplace, Cambridge, and has become something of a founder factory, with a cohort of former employees launching their own companies. People inside the Cambridge spinout scene also tell Sifted that former execs from the company commonly take up operator roles at local startups.
The same can be said of DeepMind and London. Founded in 2010 and staffed by top UK researchers, the company has been behind some of the world’s most ground-breaking developments in AI and exited to Google for $400m in 2014 — at the time one of Europe’s largest tech acquisitions.
Exits like that would help the northern ecosystem. But big ones — unless you’re a buzzy AI company — aren’t there at the moment in Europe.
“We’ve had offers on over 20% of our portfolio companies in the last 12 months,” Foreman says, “but a lot of those deals are less cash up front, more contingent on performing x, y, z, and I think that's a real shift in the market from what would have been the case in 2021, 2022, when people were more bullish on acquisitions.”
Foreman says one of those offers was for £100m, but only £30m would have been cash up front, with the remaining £70m to be paid out over a number of years and dependent on milestones. “If we’d proceeded, none of the shareholders could have been certain of what the value of that transaction would have been.
“Everyone seems to be saying the same thing, which is that the structure of deals has slightly changed and that becomes quite tricky.”
And the IPO market?
“New listings coming to the London Stock Exchange (LSE) are thin on the ground right now [...] I think partly that’s the appetite from institutional investors, partly that's the appetite from founders to become a listed vehicle because that’s not the easiest thing, and I think one of the things that’s really missing is that kind of junior market.”
The Alternative Investment Market (AIM), a sub-segment of the LSE for small- and medium-sized growth businesses which hosts companies with an average market cap of £101m, is one example.
“If you’re thinking of businesses in our portfolio wanting to list, AIM would be the most obvious first step as a liquidity thing,” Foreman says. “But AIM’s just had a really tough time [...] there’s not that many shining examples of how AIM has worked to provide that liquidity and that first step on the listing journey, and I think a lot of founders have been really put off by that.
“There was a time certainly in the mid 2000s where listing a business was seen as a milestone, as a badge of honour,” he adds. “I think most founders in tech today are not thinking that way, they’re thinking about staying private for longer, growing the business, or potentially exiting earlier to a trade buyer rather than continuing on their own journey via a listing.”
Foreman says he’s had conversations with portfolio companies that are in a place where they could take that first step, but he says the general feeling is that it’s “not something that’s particularly attractive”.
“There are definitely more companies in the portfolio which have expressed a desire to list,” he adds. And where do they want to list? “They’ve expressed a desire to list in America.”
