Posted on Tuesday, 5th October 2010 by Vanessa Miller

Last November the Rowlands Review, a government backed report which examined the equity gap in the UK, threw up the idea for the creation of a “growth fund” to assist smaller businesses.  

When the idea was mooted, it was compared to a version of the private equity giant 3i. That’s not the 3i of today, but the state-backed organisation that used to support smaller businesses. In fact, when this organisation was set up after the Second World War, it wasn’t even called 3i but the Industrial & Commercial Finance Corporation (ICFC)

According to reports in the press, six British banks are going to make this latter-day ICFC a reality by stumping up £1 billion to create a “venture fund”. Apparently, the fund will target companies with sales ranging from £20 million to £250 million and will be run by the banks on a commercial basis.

If this is the case, the fund under discussion should not be termed a venture fund. There is a strong case for arguing  that a venture fund should be targeting sub-£10 million companies. These are the genuinely small businesses which remain in a financial no-man’s land because they frequently lack the assets or collateral to give banks the security to lend.

Like I say, the full details of the fund are yet to emerge but there does appear to be real confusion about the different needs of companies and the very specific types of financing they need as they grow. To my mind, this fund sounds  like it will be helping to refinance and recapitalise businesses, which has nothing to do with venture or finance which can bridge the equity gap.

Too often, the definition of “small business” in this country seems to encompass any company that isn’t listed in the FTSE 100. It’s one of the reasons why government backed funds are invariably misguided and end up as disasters.

Still, maybe this one will be different. 

Similar Posts:

Share

Posted in Business FAQ | No Comments »

Leave a Reply