The state-owned multi-tentacled British Business Bank has never been a simple organisation to understand, but at least one could vaguely grasp its intended role in life. “Our mission is to drive economic growth by helping smaller businesses get the finance they need to start, scale and stay in the UK,” declares its website.
Jolly good. For decades, complaints have been heard about gaps in the financing ecosystem for startups and for promising young UK companies, particularly those in tech-related and life science fields, or those spinning out of universities. So one can applaud the existence of a large and distinctly British source of capital to “crowd in”, as politicians like to say, private venture funds.
But then we turn to this week’s eye-catching move by the development agency: a £25m equity investment in Kraken Technologies, the whizzy software platform that is being separated from the greater Octopus Energy empire with an eye to an eventual stock market listing. Kraken fits the bill as a tech company but, in two other respects, it is miles away from what the BBB usually does.
First, Kraken is definitely not a small business. It is valued at $8.65bn, or £6.45bn, in the fundraising. At that level, if it were a UK-listed company already, it would enter the FTSE 100 index in roughly 70th place, a few slots below Sainsbury’s and a few above Pearson.
Second, you’d struggle to claim that the BBB’s presence made all the difference to the success of the wider Kraken/Octopus $1bn fundraising round that was led by a US fund, DI Capital Partners. Kraken has recurring revenues of $500m, so is being valued at roughly 17 times those revenues. If it can raise equity at such a princely multiple, it is not struggling to find backers. The BBB’s investment, note, works at a stake of approximately 0.35% in Kraken. One strongly doubts that was the make-or-break element.
Then there is the political angle. Peter Kyle, the business secretary, tried to position the BBB’s £25m in the context of Kraken’s eventual choice of listing venue – a live question since the firm describes itself as “headquartered in London and New York”. The money was “not a bung”, Kyle told the FT, but part of efforts to keep the company in the UK.
Does £25m make a difference on that score? Hardly. One can say, as Greg Jackson, Octopus Energy’s founder, did, that it gets “a seat at the table”, but he’s being generous: 0.35% is more of a stool in the corner. Jackson also called the choice of listing venue a “coin toss” between the UK and US. Like him, we’d love London to get the nod, but these decisions invariably come down to the basic question of where the valuation is likely to be higher.
Here’s the BBB’s explanation of its thinking: “We have made this investment with the intention of making a financial return. We were introduced to Kraken by Octopus Ventures and were given an opportunity to be involved in a deal. This was too good an opportunity to miss. The majority of investors are international, so this investment ensures that the UK taxpayer gains exposure to Kraken, one of our fastest growing companies.”
One can understand the BBB is in it to make money – one should hope so. But its investment mandate seems to have been quietly rewritten if Kraken can be defined as a small business, and if ministers are trying to layer specific listing objectives on top.
The BBB’s permanent capital was topped up by £6.6bn in last year’s Treasury spending review, taking the tally to £25.6bn. It was also told it could make direct investments of as much as £60m in a single company, up from a previous £15m. So maybe we should expect more punts on firms that are well beyond startup stage and have done a lot of scaling up already.
It would be useful if the new rules were set out explicitly. The Kraken investment may or may not turn out to be a profitable use of taxpayers’ money. But, given the BBB’s supposed objectives, it also looks a case of mission creep.
