UK announces funds to bridge equity gap

30 May 2006 | News | Update from University of Warwick
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Technology transfer
The UK government has created two new Enterprise Capital Funds (ECF) under its £40 million scheme to aid high tech businesses caught in the equity gap.
By Nuala Moran

The ECF is funded by the Small Business Service, a UK government agency

The UK government has created two new Enterprise Capital Funds (ECF) under its scheme to aid high tech businesses caught in the equity gap. ECFs invest a mixture of public and private money in small, high growth companies that need up to GBP2 million.

The two new funds are the Seraphim Fund, a GBP30 million generalist fund that will invest alongside business angels and other private investors. The fund will be managed by a coalition of business angel networks, investing across the UK. The second new ECF is the Amadeus Enterprise Capital Fund a GBP10 million fund, with GBP6.5 million from the government and 3.5 million from private investors, to the managed by Amadeus Capital Partners of Cambridge.

Laurence John, manager of the Amadeus ECF said, “We work closely with a number of angel investors; they are an important part of seed financing, especially in our business where the idea is often driven by technology entrepreneurs with little or no business experience.”

The other two ECFs established to date are the IQ Capital Fund, with GBP25 million to invest across the Cambridge, Oxford and Bristol areas, and the 21st Century Sustainable Technology Growth Fund, a GBP30 million that will invest in companies developing sustainable technologies.

David Quysner, Chairman of the Capital Enterprise Board that advises the government on which funds to back said the two new funds, “Demonstrate 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.”

A competitive bidding round for fund managers or business angels to run ECFs was launched in July 2005 and attracted 45 bids.

The proven scarcity of capital in the GBP500,000 – GBP 2 million range is mainly due to the fact that the cost 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.

The approval of the two new ECFs is subject to them raising the funds within six months of signing the contract. Each will make investments of up to GBP 2 million on commercial terms. The funds are expected to be investing within a few months.

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