NWDA set to launch VC loan fund
The North West Regional Development Agency is set to announce the launch of an £80m venture capital loan fund within the next few days.
It has issued a tender document (see Contracts and tenders, page 18) requesting bids from potential managers to run the fund, whose objective will be to provide seed and growth capital for SMEs and fast-growth businesses.
The agency hopes to match its investment with private sector cash to create a total fund worth around £160m.
The funding, which has come from a pot of European Regional Development Fund (ERDF) cash lasting until 2013, will take equity stakes in companies with a view to creating an “evergreen” fund which will last beyond that.
The initiative is designed to operate in areas where the NWDA has identified a “market failure” — lower-level, risky funds from early-stage companies which struggle to raise cash from private equity houses.
James Dow, principal at Warrington-based corporate finance house Dow Schofield Watts, said he believed the need for public funding had been correctly identified.
“There is an equity gap at that level — anything less than £2m is not really supported by private equity houses any more,” he said.
Daniel Finestein, whose Manchester-based private equity fund Infinity Asset Management writes cheques of between £500,000 and £10m for equity stakes in businesses, said that although it operated in a similar space to the proposed fund, his company was not really interested in start-ups.
“We're after more established businesses,” he said. “However, if there was match funding available from the agency we might be more inclined to do it.”
Keith Turpin, a partner at Manchester-based DTE Corporate Finance, described the launch of the fund as “great news”. He said the equity gap for lower-level funding has actually widened as the size of private equity funds has grown. “In the last few years the banks have moved into that space but I think there's been less of an appetite from banks recently as well.”
Likely bidders for the contract include a number of companies which have run public sector-led funds before including Liverpool-based Alliance Fund Managers (MSIF), Preston-based Enterprise Ventures (Rising Stars Growth Funds) and Yorkshire Fund Managers (South Yorkshire Investment Fund).
No surprises here in terms of who will manage the funds. My gut feel is it will be split between the three of them, at least I expect a good proportion going to MSIF. In case you were not aware, Northern Startup 2.0 is supported by all three VCs through regular attendance. If you wish to have an informal chat with Doug Stellman of YFM Private Equity, Ed French of Rising Stars or Malcolm Stewart, Mike Bakewell, Peter Leather, Gillian Hunt of MSIF/Liverpool Ventures, why not attend the next event. We expect to see 6 VCs representing North of England, London and the USA