Small firms offered cash injection of £2m

Two new Enterprise Capital Funds are to be created under a multi-million pound Government scheme to boost innovation, jobs and growth for small businesses trapped in the equity gap, Small Business Minister Margaret Hodge announced yesterday.

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 £2m funding rounds, which makes it difficult for a number of businesses to raise the finance they need.

Margaret Hodge MP, the Small Business Minister 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.

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."

The first fund is the Seraphim Capital Fund - a £30m generalist co-investment fund that will invest alongside leading business angels and other private investors. It will draw 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 second offering is The Amadeus Enterprise Capital Fund - a £10m fund that will focus on individuals keen to drive forward a technological idea or invention.

David Quysner, Chairman of the Capital for Enterprise Board that advised the Government on which bids to support, said: “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 £2m 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.


24th May 2006

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