Two new Enterprise Capital Funds to help plug the equity gap
Two new Enterprise Capital Funds (ECFs) are to be created in an attempt to help small businesses trapped in the equity gap, Small Business Minister Margaret Hodge has announced.
Enterprise Capital Funds invest a combination of private and public money in small high-growth businesses seeking up to £2 million of equity finance. The funds help to address the scarcity of equity capital in the £500,000 to £2 million funding rounds, which makes it difficult for a number of businesses to raise the finance they need.
Today's announcement brings the total number of funds approved in the Pathfinder round of ECFs to four, further funds may be announced as the round continues.
On announcing the funds, Margaret Hodge MP said, 'These new funds will help many small businesses that might otherwise have been unable to develop their potential because there was no equity finance available to them."
The ECFs announced today are:
The Seraphim Capital Fund
A £30 million generalist co-investment fund that will invest alongside leading business angels and other private investors drawing on the deal flow and investment experience afforded by the funds' diverse investor base. The fund will be managed by a coalition of 'business angel' networks and will focus on investments in companies throughout the UK predominantly in the early stages of development.
The Amadeus Enterprise Capital Fund
A £10 million fund that will focus on seed technology investments. The Fund will be managed by Cambridge based Amadeus Capital Partners who are one of the country's leading specialists in this sector.
Each ECF will be able to make equity investments of up to £2 million into eligible SMEs that have genuine growth potential but whose funding needs are currently not met. Investments will be on commercial terms.
David Quysner, Chairman of the Capital for Enterprise Board that advised the Government on which bids to support, added 'The two funds announced today are a valuable addition to the ECF portfolio. They demonstrate that the ECF programme can attract new capital and innovative approaches to investment in the equity gap as well as encouraging some very experienced investment professionals to be more active in the sector.'
While the UK has dynamic and efficient finance markets that meet the investment needs of most SMEs, there is a proven scarcity of equity capital in the £500,000 to £2 million funding rounds. One reason for this is that the costs of making investments, for example due diligence and legal costs, are largely fixed. This makes it more attractive for commercial funds to seek larger deal sizes where these costs are less significant, leaving an equity gap.
The approval of these ECFs is subject to contract and funds will have up to six months to raise the full amount of private capital. However, SBS is confident that the first of the funds could be investing in just a few months because of the strong private investor commitment shown.
Posted May 23, 2006
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