BusinessCorporate FinanceHigh street firms boosted by launch of enterprise funds

High street firms boosted by launch of enterprise funds

Department of Trade and Industry launches the first two of its Enterprise Capital Funds

It’s been a long time coming, but after a wait that would have tested the
staying power of the most patient, the Department of Trade and Industry has
finally launched the first two of its Enterprise Capital Funds.

The ECFs are aimed at filling the ‘funding gap’ – a commercial no-man’s land
where a business is too small for the large private equity houses, but too big
to source capital from high street banks.

The government announced the launch of the £25m IQ Capital Fund and the £30m
Sustainable Technology Growth Fund on Budget day, and with the launch of three
more funds still to come, high street accountants will be the professionals
perfectly positioned to cash in.

The ECF idea, a version of a similar initiative in the United States, which
has seen the creation of corporate giants such as Federal Express and Apple, was
revealed in the December 2003 pre-Budget report.

A lengthy consultation, obtaining European Union clearance and the
appointment of commercial fund managers to run the ECFs has dragged the process
out.

The sums of funding that the ECFs will provide for individual business, no
more than £5m and as little as £200,000, will not generate advisory fees large
enough to attract the attention of the large accounting firms and investment
banks.

But for sole practitioners the amounts are right in the sweet spot, and as
the first point of contact for SMEs requiring business advice there is a good
opportunity to generate some advisory income.

The DTI has indicated that each ECF will be worth around £25m. One of the
conditions for this funding is that private investors, probably the ECF fund
managers, will need to provide one third of the capital for any deal, with
government putting up the other 66% as debt.

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