UK Law and Practice Contributed by: Dylan Doran Kennett, Michael Jacobs, Stephen Newby and Mark Ife, Herbert Smith Freehills LLP
2. Venture Capital Funds 2.1 Fund Structure
1.3 Key Industries Artificial intelligence (AI), fintech, and life sci - ences and biotech continue to dominate the VC landscape in the UK. According to HSBC Inno - vation Banking, fintech and life sciences were the most popular start-up segments in 2024, with 24% (USD3.9 billion) of UK VC investment going into fintech businesses and 20% (USD3.3 billion) invested in life sciences ventures. The UK also retained its substantial lead in Europe as the top spot for biotech investment, receiving GBP3.5 billion, representing a 94% increase compared to the previous year and the highest annual figure since the record-breaking year of 2021 (according to a report by UK BioIndustry Association). UK university spin-outs in the life sciences sector continue to thrive, making up the high - est proportion of university spin-outs in 2024. In addition, the number of AI spin-outs is rising rapidly, consistent with broader venture capital markets trends. The UK’s relative strength in this area shows no signs of waning. The Oxford- Cambridge Arc, a railway line linking Oxford and Cambridge, is anticipated to foster further inno - vation and university spin-offs, thereby promot - ing sustained economic growth and attracting investment. Given the increasing concern for climate change and pressure on governments to set and achieve net zero targets, the top funded climate tech are - as were electric mobility, EV battery and autono - mous mobility, according to PwC research. This includes capex-heavy companies focused on the energy transition. Beyond autonomous mobility, AI ventures offering generative AI solutions were most attractive due to the growing interest from corporates in implementing this type of AI into business practice to streamline content creation and enhance efficiency.
Many VC funds established in typical fund domi - ciles (eg, the Channel Islands and Luxembourg) are marketed into the UK. VC funds in the UK are typically structured as an English limited partnership under the Limited Partnerships Act 1907, with a single general partner (usually a fund-specific special-purpose vehicle within the manager’s group) and a number of investors who come in as limited partners. The general partner has unlimited liability for the debts and obligations of the partnership (although, in prac - tice, it is likely to be a limited company special- purpose vehicle itself), whereas the liability of each limited partner is limited to the amount of its capital commitment to the partnership. The general partner is responsible for the day-to-day management of the fund, which is usually dele - gated to an appropriately authorised investment management entity within the manager’s group. Limited partners often play a role in overseeing manager conflicts of interest, the replacement of key persons and other material decisions relat - ing to the fund, either through a limited partner advisory committee or by a vote amongst all the investors. Fund documentation typically consists of a limited partnership agreement setting out the terms of the fund, supplemented by a subscrip - tion agreement to be executed by each investor and subject to additional terms agreed bilater - ally in a side letter between the general partner and any investor who negotiates such terms. A manager will also generally issue a private place - ment memorandum in relation to the fund, sum- marising the key terms of the fund and contain - ing other marketing information and regulatory disclosures, including risk factors.
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