BGF: "We are not scraping the bottom of the barrel"

Much has been made of the BGF's strategy in recent months - not least coming from the existing growth investors community in the UK, worried that it would have to compete with a mammoth fund unconcerned with optimal performance. Speaking at an ICAEW conference on growth investments, moderated by unquote", Welton quickly set to put these issues to rest.

He firstly reiterated that the BGF doesn't aim to invade private equity and venture capital's turf: "We are not a private equity or buyout house in disguise - we want to stay junior partners to entrepreneurs and not seize control. We are very keen to work with others, be they local banks, advisers, or other investors."

But Welton also highlighted the specificity of the BGF model - which doesn't invest from a closed-end fund but from the equivalent of a £2.5bn balance sheet - and how it was fit to support the long-term needs of UK SMEs, on a large scale: "We are not time-constrained, since we invest from a balance sheet. Our challenge is to make lots of investments."

This need to put vast amounts of capital to work in relatively small increments (with a £2-10m ticket per deal) raised a few eyebrows when the BGF was launched - with some thinking it would distribute money left, right and centre with little regard for performance. "We are not scraping the bottom of the barrel here, and there are plenty of quality small businesses to back in the UK," countered Welton, before insisting on the extensive due diligence and careful selection leading to the BGF's first four deals: "We could have a first-come, first-served policy but it wouldn't work."

At the same time, this approach might clash with the political pressure that led to the BGF being created in the first place. Indeed, Labour MP Toby Perkins challenged Welton on the relatively small amount of investments undertaken by the BGF since inception, at a time when getting access to financing is proving increasingly challenging for SMEs. "We started with few investments, but that enabled us to gauge the market and the appetite for our approach," noted Welton. He nevertheless admitted that the BGF might have to ease back on extensive due diligence: "We do have to scale up. The amount of effort put into those four deals is not scalable - we are working towards a quicker, more efficient way to deploy our capital."

Between the need to remain focused on attractive investments and the pressure to help mend the UK economy quickly, the BGF will tread a fine line in the months to come - a conundrum summed up by Welton in his final remarks: "We need to do due diligence, but we need to do it quicker - and be prepared to lose money at times."

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• Topics
• UK / Ireland
• Expansion
• BGF (Business Growth Fund)
• United Kingdom