Small business equity-finance funds launched
The government has announced the creation of two new Enterprise Capital Funds (ECFs) with a combined value of £40 million to boost investment in small businesses, doubling the number of ECFs launched this year, with a total value of £95 million, writes Aengus Collins.
The first new ECF – the Seraphim Capital Fund – is a £30 million co-investment fund. This means the government investment will be made in tandem with private investors. The fund will invest across a range of sectors, although it will focus on businesses in the early stages of development and be managed by a network of business angels.
The second fund is the Amadeus Enterprise Capital Fund, a £10 million fund that will invest in seed-stage technology businesses. The fund will be managed by Amadeus Capital Partners, a Cambridge-based venture capital firm that specialises in the technology sector. The firm has said it expects the fund to make up to ten investments.
ECFs use a mix of government and private finance to make equity investments of up to £2 million each into small high-growth businesses. The government’s purpose in putting public money into ECFs is to encourage private investors to invest in smaller businesses with the potential for rapid growth.
The government has identified a gap in the availability of equity finance for deals between £500,000 and £2 million. Currently equity finance tends to target larger firms because of the fixed costs involved in making an investment, such as due diligence and legal costs – which make it more attractive for investors to focus on larger deals.
Launching the new funds, Small Business Minister Margaret Hodge said: ‘These new funds will help many small businesses that might otherwise have been unable to develop their potential. These funds demonstrate how the government is actively working with private investors to create an environment where British businesses are given the world-class support they need to succeed.’
In this year’s Budget, the Chancellor of the Exchequer pledged to allocate ECFs a further £100 million. Announcements regarding further funds are expected over the coming months.
For more information about ECFs, visit www.sbs.gov.uk/financegap
Source: Small Business Service