Community VC funds for England

Two funds providing finance for entrepreneurs in England’s most economically deprived areas have held a first closing of GBP32.5 million. The government and private sector investors have jointly financed the funds, known as the Bridges Community Development Venture Funds. A final close at GBP40 million is expected in the next six months.

The idea for the funds arose from the Social Investment Task Force, chaired by Sir Ronald Cohen chairman of Apax Partners. In October 2000 it reported to the Chancellor of the Exchequer and recommended a five-point programme of action. Apax, 3i and Tom Singh (founder of the New Look retail chain) established the funds the following year. Investors include Cohen, 3i, Doughty Hanson, HSBC, Lloyds TSB Scotland, Royal Bank of Scotland, Schroder Salomon Smith Barney, Merrill Lynch, Lehman Brothers, the West Midlands Pension Fund, Reuters and several successful entrepreneurs.

To qualify for investment from the funds entrepreneurs need to be located in the most deprived 25 per cent of England and have either a strong employment, supplier or market relationship with the area. The funds will invest at any stage in the development of a high-growth small-or-medium-sized enterprise requiring equity of between GBP100,000 and GBP2 million. The funds have been structured by SJ Berwin, which worked on a pro bono basis, as two limited partnerships of GBP28 million and GBP12 million. The larger of the two funds is subject to EU Commission state aid approval, meaning the investments it makes will be governed by stricter rules than those made by the second fund.

Bridges Community Ventures is inspired by the Community Development Venture Capital industry in the US, where there are currently 60 similar funds. Bridges Community Ventures is a member of the US-based trade association, the Community Development Venture Capital Alliance (CDVCA).

Cohen is chairman of the funds’ management company, Bridges Community Ventures and Singh is non-executive director. The company’s managing director is Philip Newborough, previously director and general manager of Aiwa Europe and managing director of MWB Business Exchange.

Gordon Brown, Chancellor of the Exchequer, believes the key to neighbourhood renewal is more businesses, and that the funds will open up opportunities and encourage enterprise. He said: “It will help dynamic and fast-growing enterprises to prove that deprived areas are not no-go areas for business but sources of future growth and entrepreneurship.” The funds will operate on standard, commercial VC principles with the aim of becoming sustainable. Cohen said they will provide significant capital and expertise to individuals who would not normally be eligible for traditional financing but whose businesses could make a long term economic contribution to their community.