The Business Growth Fund (BGF) has been launched by five banks to invest up to £2.5bn ($4bn) in UK smaller and medium sized businesses. The corporate venturing fund will invest between £2m and £10m per business that has an annual turnover of around £10m to £100m in return for a minimum 10% equity stake and a seat on the board for a BGF director. The investing banks behind the fund are Barclays, HSBC, Lloyds, RBS, and Standard Chartered, although Santander pulled out to concentrate on its own regional investment policy. The fund said it was considering its first 10 deals and over the next few years was expected to invest in hundreds of UK businesses from its offices in Birmingham, London and Edinburgh. Stephen Welton (pictured), chief executive of the BGF and former partner at investment bank JP Morgan’s former leveraged buyout unit, said: "Barely eight months ago, in October 2010, the Business Growth Fund began life as a 37 word sentence published in the Business Finance Taskforce report. "The rationale behind the BGF is because there is a gap in long-term equity capital. In recent years in the UK there has been excessive reliance on debt, which is attractive in buoyant economic times, and so there has been a consequence reduction of long-term capital. "There is also a debate about bank lending and provision of working capital and how much businesses want to borrow but we are looking not to be a substitute but provider of capital that requires different attitudes by companies. For some companies, having a partner is anathema or they do not need equity but our view is there is a significant opportunity in finding and helping companies take on additional capital, which can also then help unlock bank capital or in say the creative industries (10% of GDP) that have no assets to raise debt against. "We are looking to be a long-term partner, which would not happen if we were a unit of a bank. By being an independent institution we have our own identity but with the support of powerful shareholders and £2.5bn. "The money has been signed in legal documents and we draw down as share capital rather than as a LLP [limited liability partnership, used by most private equity firms]. At about £5m per company we can support hundreds out of a potential 10,000 market. "But the BGF can bring more than money. There is an opportunity to provide advice and…
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UK bank fund to work with corporations
May 25, 2011 • James Mawson
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