James Codling, Volution
UK venture has a problem that it will not name out loud. Most VC firms in this country could not tell you, with a straight face, who their client actually is. They act as though it is the founder they back. It is not. The client is the limited partner (LP) who wired the cheque, and the 2019–2021 vintages are about to make that confusion very expensive.
I have spent nearly thirty years in private capital, half on each side of the fence. The gap between PE and venture is not a matter of style, but one of purpose. PE knows it is a fiduciary first and a dealmaker second. UK venture has convinced itself it is in the business of discovery, kingmaking, and backstage passes. What you get as a result is something closer to A&R at a 1998 record label than professional capital allocation.
Look at “distributed to paid-in capital” (DPI), a term used to measure the total capital that a private equity fund has returned thus far to its investors (it is also sometimes referred to as the realisation multiple). This is the only number an LP can actually spend. British Business Bank data indicates the UK VC median DPI is below 0.4x. UK mid-market PE routinely clears closer to 1.3x over the same horizon. VC runs a slower clock for worse returns.
So here is my prediction, on the record: The 2019–2021 UK venture vintages will likely post the worst ten-year DPI of any generation in this industry's history, and that is a real problem. The UK tech sector sits at the heart of the Government's Industrial Strategy, and the strategy depends on private capital stepping up - deeper pockets, less reliance on public funding. This industry's return profile is moving in the wrong direction at exactly the moment the policy environment is trying to move in the right one.
Take, for example, the pension capital being steered into unlisted equities under the Mansion House Compact. That capital, when it arrives, will not be allocated on goodwill. Trustees overseeing members' retirement savings will look at 10-year DPI data before they write a cheque, and the data will tell its own story. When those numbers print, most likely around 2029, the Government will rightly say it opened the gates, and the industry will be left explaining why it was not ready to walk through them.
Capital was deployed at peak valuations into companies chosen for their co-investor list rather than their unit economics, and the DPI will show it. The same process is playing out in real time in the AI market, where valuation discipline has been the first casualty and the lessons of 2019 to 2021 are being relearned at speed.
Too many UK VCs think the job is signing talent, chasing the ‘hot round’, the founder with Sequoia on speed dial, and the party you cannot get into. Partners compete for allocation the way record executives once fought over boy bands. I have seen investments where the strongest argument for writing the cheque was that a rock star VC was already in.
Private equity would not behave this way - it gets the things venture refuses to learn, treating capital without sentiment, because a company is an asset with cash flows, not a narrative to protect. It keeps the hierarchy clean - the LP is the principal, the GP is the agent, and the founder is the counterparty. PE is unsentimental about leadership - when necessary, it will restructure, execute change, and sell when the return profile demands it. UK venture tends to protect founding narratives for too long.
Money follows money. That is the iron law of the industry, and it explains the growth capital gap the UK keeps wringing its hands about. American growth funds, Gulf sovereigns, and Canadian pension plans allocate where the track record sends them. No one in Riyadh or Toronto is a sentimentalist about our ecosystem. Depending on which industry report you read, UK scale-ups still raise roughly two-thirds of their growth capital from non-UK investors once they pass Series B. That capital flows from the places LP memory has filed under reliable. Silicon Valley earned that filing decades ago, DPI by DPI.
What is needed is concentrated books in place of spray-and-pray, underwriting that survives the partner who wrote the memo, leaving for another fund, and pricing discipline that does not bend because a fashionable name is already in the round. Cash returned to LPs when the moment is right, including where M&A is a better outcome than continuing to fund a business that has reached its ceiling. Every LP conversation should be treated as a quarterly audit of fiduciary duty, not a fundraising pitch. None of this is exotic; it is simply what disciplined capital allocation looks like when the LP sits at the top of the org chart.
The Mansion House Accord has 17 pension providers signed up, around £50 billion of DC assets, and a target of 5 percent of DC default funds being invested in UK private markets by 2030. That is a fine ambition, but if you were a trustee sitting on your members’ retirement savings, would you write a cheque into an asset class whose ten-year DPI is below one, staffed by a generation of managers who deployed at peak valuations into logo rounds?
The pension capital is coming, and it represents a genuine opportunity for this industry to reset and to demonstrate that UK venture can meet institutional standards and earn a permanent place in the portfolios of Britain's largest long-term investors.
The UK has the talent, technical depth, and founder density to run a world-class venture ecosystem, and, for the first time in a generation, the institutional capital to match it is within reach, but it is not owed to us - it has to be earned. Until UK VCs put the LP at the top of the org chart and deliver returns that stand up to international scrutiny, growth capital will keep pooling into the funds that have already earned it. The fiduciary era starts when we decide it does. The returns follow.
James Codling is Managing Partner, Volution
