Business Growth Fund, backed by the UK's five biggest banks, will form a venture capital subsidiary to invest in earlier-stage businesses.

Business Growth Fund (BGF), the £2.5bn ($3.9bn) private equity firm backed by five UK-based banks, is preparing to set up a venture capital unit to invest in earlier-stage companies.

The nascent BGF Ventures is still recruiting a team to potentially start in the first quarter of next year, a BGF spokesman said.

Founded in 2011 after government pressure on local banks following state ownership was required when the credit crunch hit, BGF has invested about £250m in buying minority equity…