British Business Bank doubles potential commitments to ECFs

Amy King
28 April 2014

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The British Business Bank has doubled its maximum potential commitment for new enterprise capital funds (ECF) to ТЃ50m under new guidelines published today.

The new guidelines will also lift the restriction on the size of the initial investment ECFs can make in target companies, rising from £2m to £5m.

With the bank able to commit up to two thirds of each fund, prior to the latest guidelines the average size of the 16 vehicles raised so far stood at £30-35m. But new developments could see the figure rise substantially in the next wave of vehicles, with more capital available for follow-on funding.

Since the bank receives a lesser share of the profits than the percentage of the fund it commits, increased commitments could see LPs in successful funds retain a larger cut of the profits.

Since its inception, the British Business Bank has backed 16 vehicles with an aggregate total in excess of £530m; those vehicles have made investments in 169 companies to date, according to research by the ICAEW's Corporate Finance faculty. The first generation of enterprise capital funds closed in 2006.

Recipient vehicles so far include the £10m Amadeus & Angels Seed Fund, £6.5m of which was committed by the bank; Episode 1, a tech-focused fund manager launched in 2014 by Simon Murdoch, a former investment professional at Octopus Ventures and former vice president for Europe at Amazon; and Notion Capital 2, which held a first close on $100m in 2012 and is the largest enterprise capital vehicle. The fund also received a substantial contribution from the European Investment Fund.

Originally launched in 2005 by the Department for Business, Innovation and Skills, the ECF programme aims to fill the equity gap in growth capital available to SMEs. Managed by the British Business Bank, the programme has received a further 10-year approval from the European Commission to run until 2024.

"The equity gap reflects a long-established issue for high-growth firms seeking modest amounts of capital; the extension of the ECF programme will allow us to continue supporting investment at this crucial stage," Ken Cooper, managing director for venture capital solutions at the British Business Bank, told unquote".

The bank also manages the Venture Capital Catalyst Fund, which backs venture funds looking to reach a first close. "There is a cyclical problem with venture capital; that's where LPs, either through credit-crunch constraints or some of the variable returns we've seen in the later stage of the market, have backed away. So at the moment we have a need for the public sector to step in to fill some of that gap," said Cooper.