Early Assessment of the Impact of BIS Equity Fund Initiatives For the Department for Business Innovation and Skills (BIS) URN 10/1037 Centre for Enterprise and Economic Development Research (CEEDR) Middlesex University Business School The Burroughs London NW4 4BT July 2010 Research Team: Professor David North, CEEDR Dr Rob Baldock, CEEDR Dr Ignatius Ekanem, CEEDR Adrian Lewis, Sanders Thomas Ltd Acknowledgements The authors would like to thank the businesses and fund managers that gave their time to be interviewed for this research. They would also like to thank the project manager, Daniel Van der Schans, and members of the steering group for their guidance during the research and comments on the draft of the report. The findings and interpretations in this report are those of the authors and do not necessarily represent the view of BIS. Contents EXECUTIVE SUMMARY ......................................................................................................................................... I INTRODUCTION.....................................................................................................................................................I METHODOLOGY....................................................................................................................................................I KEY FINDINGS ..................................................................................................................................................... II 1. INTRODUCTION ......................................................................................................................................... 1 2. BACKGROUND ........................................................................................................................................... 2 2.1 CONTEXT ................................................................................................................................................ 2 2.2 OVERVIEW OF THE BIS EQUITY FUNDS ......................................................................................................... 3 3. AIMS AND OBJECTIVES.............................................................................................................................. 7 4. METHODOLOGY ........................................................................................................................................ 8 5. FINDINGS FROM FUND MANAGERS ........................................................................................................ 11 5.1 OVERVIEW OF THE FUNDS ........................................................................................................................ 11 5.2 CHARACTERISTICS OF APPLICANT BUSINESSES .............................................................................................. 13 5.3 EXPERIENCE OF APPLICANTS WITH OTHER FUNDING SOURCES ......................................................................... 14 5.4 THE APPLICATION PROCESS ...................................................................................................................... 15 5.5 FUND MANAGERS’ VIEWS ON THE ECF/CFEF MEETING THE EQUITY GAP ......................................................... 18 5.6 ECONOMIC IMPACTS ............................................................................................................................... 20 6. ENTERPRISE CAPITAL FUND– BUSINESS INTERVIEW FINDINGS ............................................................... 25 6.1 BUSINESS PROFILE .................................................................................................................................. 25 6.2 REASONS FOR SEEKING EQUITY FINANCE ..................................................................................................... 26 6.3 ALTERNATIVE FUNDING CONSIDERED ......................................................................................................... 26 6.4 ADDITIONALITY ...................................................................................................................................... 27 6.5 THE CUSTOMER JOURNEY ........................................................................................................................ 28 6.6 THE DEAL STRUCTURE ............................................................................................................................. 30 6.7 FUNDING LEVERAGE ............................................................................................................................... 30 6.8 ACTUAL AND LIKELY IMPACT OF FUNDING ON BUSINESS PERFORMANCE ........................................................... 31 6.9 NON-FINANCIAL BENEFITS ........................................................................................................................ 33 6.10 SUMMARY ............................................................................................................................................ 33 7. CAPITAL FOR ENTERPRISE FUND - BUSINESS INTERVIEW FINDINGS ...................................................... 35 7.1 BUSINESS PROFILE ................................................................................................................................... 35 7.2 REASONS FOR SEEKING FINANCE ................................................................................................................ 36 7.3 ALTERNATIVE FUNDING CONSIDERED .......................................................................................................... 36 7.4 ADDITIONALITY ....................................................................................................................................... 37 7.5 THE CUSTOMER JOURNEY ......................................................................................................................... 38 7.6 THE CFEF DEAL STRUCTURE ...................................................................................................................... 40 7.7 FUNDING LEVERAGE ................................................................................................................................. 41 7.8 ACTUAL AND LIKELY IMPACT OF FUNDING .................................................................................................... 42 7.9 NON-FINANCIAL BENEFITS ........................................................................................................................ 43 7.10 SUMMARY ............................................................................................................................................. 43 8. ASPIRE FUND – BUSINESS INTERVIEW FINDINGS.................................................................................... 46 8.1 BUSINESS PROFILE ................................................................................................................................... 46 8.2 REASONS FOR SEEKING EQUITY CAPITAL ...................................................................................................... 46 8.3 ADDITIONALITY ....................................................................................................................................... 47 8.4 CUSTOMER JOURNEY ............................................................................................................................... 47 8.5 THE ASPIRE DEAL AND FUNDING LEVERAGE ................................................................................................. 49 8.6 IMPACT OF FUNDING .............................................................................................................................. 50 8.7 NON-FINANCIAL BENEFITS ....................................................................................................................... 51 8.8 SUMMARY ............................................................................................................................................ 51 9. FSEAF EARLY GROWTH FUND: BUSINESS INTERVIEW FINDINGS ........................................................... 53 9.1 BUSINESS PROFILE .................................................................................................................................. 53 9.2 REASONS FOR SEEKING FSEAF ................................................................................................................. 54 9.3 ALTERNATIVE FUNDING CONSIDERED ......................................................................................................... 55 9.4 ADDITIONALITY ...................................................................................................................................... 55 9.6 THE FSEAF DEAL ................................................................................................................................... 58 9.7 FUNDING LEVERAGE ............................................................................................................................... 58 9.8 ACTUAL AND LIKELY IMPACT OF FUNDING ................................................................................................... 59 9. 9 NON-FINANCIAL BENEFITS ....................................................................................................................... 60 9.10 SUMMARY ............................................................................................................................................ 61 10. SUMMARY OF KEY FINDINGS .................................................................................................................