So what is it that they have to deliver?
The UK Labour government has been exploring ways to support growing companies both through enabling venture capital firms and through early-stage government investment. Labour policy appears to be influenced by the work of Mariana Mazzucato, who has argued (in The Entrepreneurial State) that government support to early-stage companies should form part of a public-private partnership. On this model, governments provide public funding to bridge the “Valley of Death” in early-stage companies through a combination of grants, loans and equity. Governments retain the equity stake when venture capital provides further investment, so the up front risk across a range of companies will be repaid by the growth in equity value for a few stars.
Sovereign AI is a government-backed fund, aiming to be as responsive and agile as any VC fund. Part of the UK’s AI Opportunities Action Plan (which places AI at the heart of the UK’s economic and national security ambitions), the Fund’s mission is for founders to start in Britain, scale in Britain, and win globally.
That framing is important. The objective is not necessarily to scale companies to compete with the likes of Anthropic, but to build on the existing strengths within UK industry and ensure that the UK has a seat at the table in shaping the technology. Even so, can a fund of this scale deliver that goal?
The government is being creative in designing a fund that’s not just a cheque. Backed companies get fast-tracked visas for R&D talent and access to the UK’s largest supercomputers and funding to build datasets, infrastructure and tools that accelerate growth – this kind of compute is usually the preserve of the biggest tech companies. In exchange, the fund can take rights of first refusal when a company raises its next round. Also on offer is the payment of legal fees if any overseas startup wants to “flip” to a UK limited company as well as government procurement with the government acting as an early customer and serving as a quality indicator to other investors.
The investment strategy is relatively narrow (or deliberately focused – depending on your perspective). Ticket sizes are between £1m and £10m, investing directly into early-stage UK AI companies alongside co-investors on commercial terms – this is not a grant and the aim is that the UK taxpayer benefits in some of the upside.
The fund will work alongside BBB (the British Business Bank), but the two have different strategic focus and different ways of investing. BBB typically invests in investment funds, which in turn invest in companies (for a VC investment). The new sovereign AI fund invests directly in the UK AI companies. It picks companies – that is a different risk, but a bet the government will need to make. Whether the sovereign AI fund can operate with the pace that early-stage investing demands remains to be seen – government and speed are not natural bedfellows.
AI governance and security are a particular focus. This ties in with previous statements by the UK government around responsible AI. The speed at which capable AI models are advancing – Anthropic’s latest model being a striking example of how quickly the frontier is moving – means that governments which are slow to act risk being left behind and strategically exposed.
