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Capital for Enterprise
by Daniel Shear
Additional details have recently been made publically available regarding the Capital for Enterprise fund, which was first announced by the Government in January 2009 as part of the Real Help for Business programme. This programme also introduced the Enterprise Finance Guarantee scheme, which is the subject of a separate article.
The intention of the fund is to provide up to £75m of equity and mezzanine funding available to businesses finding it difficult to secure financing they need in the current economic climate. The fund is also available to businesses that are highly geared and have exhausted their traditional borrowing capacities.
The Government provided £50m of the capital with an additional £25m being provided by Barclays, HSBC, Lloyds and RBS. Of the total fund, £60m has initially been committed for investment. Octopus Investments and Aberdeen Asset Management have each been allocated £30m to invest during 2009 and 2010.
Some details of target companies in which the fund will seek to invest include the following:
- Individual investments of between £250,000 and £2m;
- Eligible businesses cannot have turnover exceeding €50m;
- Established businesses with sustainable operating profits and positive cash generation;
- Growth potential, but constrained by over gearing or lack of access to debt funding;
- Strong management team with a proven track record.
Octopus Investments has stated that it is seeking 15 to 25 new deals under the fund during 2009 and 2010, which implies they are seeking investments towards the top end of the range of the fund. They are seeking businesses operating in a growth market with a strong defensible position in relation to their competitors and businesses generating strong margins with scalable business models.
In the current economic climate any help for financing small businesses, such as the Real Help programme, must surely be welcomed. There are however a number of concerns as to whether the Enterprise for Capital fund will have much effect in providing financing to small businesses.
The overall size of the fund is very small (on a macro-economic level) and, initially at least, is only designed to assist 30 to 50 businesses. The investment criteria of the fund also seem to have been set high – it’s natural for the fund to seek businesses with growth potential and strong management teams, but existing financing constraints may be limiting current growth so the requirement for businesses to be profitable and cash generative is likely to rule out a number of otherwise good businesses.
In addition equity finance may not be suitable for growth funding to support development. Further, as the fund is being administered by non-governmental, professional fund managers there is no clarity yet as to whether these managers will be seeking an unreasonably high stake in target companies.
Regardless of these concerns there are clearly some businesses that will benefit greatly from the Capital for Enterprise fund. We are able to provide assistance in collating your business plan and preparing financial projections to support an application under the fund.
To discuss your financing needs please contact Daniel Shear.
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