The first of nine regional venture capital funds (RVCFs) backed by the UK government was unveiled this month. It’s part of a programme of funds originally announced in 2000 to help finance small businesses in England.
The East Midlands Regional Venture Capital Fund has raised £30 million to invest in entrepreneurial businesses in the region. Of this figure £14 million was contributed by local authority pension funds, £9 million by the Small Business Service, £6 million by the European Investment Fund (EIF) and £1 million by the Royal Bank of Scotland. The East Midlands Development Agency (emda) will launch the fund in March and Rob Carroll and Mike Piper, directors of Catapult Venture Managers, will administer it. Piper expects to invest a mixture of equity and loan capital in around 100 companies, commitments will be based on the likelihood of commercial returns and an exit opportunity within a three to five year period. Carroll said: “The type of companies we are looking for are dynamic, high growth businesses which have recession proof capabilities and a strong management team.”
The EIF has pledged €86 million (£53.5 million) to the RVCF scheme and the UK government, via the Department of Trade and Industry’s Small Business Service, will make up to £200 million available to invest. Private investors, including Barclays, which has committed up to £66 million in debt and equity financing, are also contributing to the scheme.
A fund manager will be appointed to run each of the funds on a commercial basis. Commitments from the EIF and the UK government, which range in size between £15 million for the North East and £50 million for London, are expected to make up 50 per cent of each fund and the fund manager will be responsible for raising the remainder from private sector investors. The government has capped its investment return and agreed to act as first loss to encourage private sector investors.
The funds will invest up to £500,000 in SMEs with growth potential in an attempt to bridge the equity gap faced by small businesses. Companies at all stages of development are eligible, start-ups, early stage, buyouts and development funding for acquisition or organic growth. Each of the funds will run for ten years.
The North East Regional Venture Capital Fund has also held a first closing at £15 million. It is being managed by Northern Enterprise Limited, a Newcastle based venture capital company. Most of the other seven funds should be operational by the end of March.