A venture capital firm chaired by Jim O’Neill, former Goldman Sachs Asset Management chairman, has raised £215 million ($270 million; €253 million) for a “profit with purpose” strategy.
Northern Gritstone, launched in July 2021, is targeting £500 million and is structured as an evergreen investment company. It has a mandate to tackle England’s regional wealth and employment inequalities by making seed investments in spin-out companies from the universities of Manchester, Leeds and Sheffield – all based in the north of England.
“Our purpose is building world-class businesses that will employ more and more people and reduce the productivity gap and create fundamental wealth in a region that needs fundamental wealth creation,” the firm’s chief executive, Duncan Johnson, told New Private Markets.
A 2021 report by the UK’s Office for National Statistics described “a clear north-south divide at a regional level”: in regions in the north of England, average income was lower than productivity (a measure of people’s working hours and economic outputs), indicating a lower standard of living.
Potential investee companies do not need to have primary objectives of creating jobs or tackling social or environmental problems, said Johnson, “but generally, these are more purposeful businesses because they’re new science or technology and doing things in a more clever or efficient way. They might be solutions that use less power, and half of the businesses in our pipeline are drug discovery or medical devices.”
Northern Gritstone will map potential portfolio companies onto the UN’s sustainable development goals, Johnson said, and “will try to define what we think the job creation potential of that business is. We’re looking at the carbon footprints of these businesses over the short and medium term and we’re looking at how much more money we can attract into the Northern region via those businesses.”
Northern Gritstone does not have target numbers of jobs created by its investments.
“Profit with purpose… underpins all we seek to do,” O’Neill said in a statement. “The strong endorsement of Northern Gritstone we’ve seen from investors is testament to the huge scale of the opportunity in northern England’s world class science and innovation hubs and the spinouts they are producing. By investing in Northern Gritstone, asset managers are directly buying into the brightest prospects for Britain’s future economy.”
Investors include the Greater Manchester and West Yorkshire pension funds, M&G’s Catalyst fund, Columbia Threadneedle, Lansdowne Partners; Bruntwood and other institutional investors and family offices.
Northern Gritstone is structured as an investment company deploying evergreen capital rather than a closed-end fund: investors are shareholders in the company and must sell their shares to liquidate their investment.
Johnson explained the choice of an evergreen model over a traditional private equity fund. “A lot of our investments will require between five and 15 years of baking in the oven. If you start the journey with a fundamental duration mismatch, it doesn’t work very well,” he said.
Johnson concluded: “We are trying to catalyse a science and innovation hub with a virtuous circle. We want to have a Silicon Fen in the North of England to compete with Silicon Valley. There’s no reason we shouldn’t aspire to be the Valley. The weather might not be quite as nice as Silicon Valley, but that’s not so bad – it’s beautiful there.”