Enterprise Capital Funds are helping to close the equity gap
An independent evaluation of the British Business Bank Enterprise Capital Funds (ECF) programme has found that the programme is helping to close the early-stage ‘equity gap’ by increasing the supply of equity capital to high-potential, early-stage UK companies as well as lowering barriers to entry for fund managers looking to operate in the VC market.
The British Business Bank commissioned Ipsos MORI to conduct an independent evaluation of the ECF programme to assess the extent to which the programme was meeting its objectives and providing a net benefit to the economy. Established in 2006, the ECF programme has supported 28 fund managers to raise 36 funds, with total investment capacity of £1.72bn and £984.4m of commitments supporting 665 companies across 701 equity deals.
The evaluation report estimated that the 388 UK-based firms funded by the ECF programme between 2011 and 2019 created almost 8,000 jobs and generated £2.2bn in additional sales by March 2019. Those companies funded by ECFs saw their annual rates of turnover and employment grow by 76% and 48% respectively.
Some of the success stories from the programme include Graphcore, GoCardless, Marshmallow, Tractable and Thought Machine, as well as successful exits in Grapeshot and Mimecast. In all these cases, ECFs were early investors into the companies.
Examining the impact on salaries of those jobs created, the report found that the programme helped to create highly skilled jobs with an average salary of £56,000. Moreover, at least 51% of those jobs created paid wages or salaries of £37,000, which is in the top quartile of UK income levels.
Ken Cooper, managing director, Venture Solutions, British Business Bank said, “The British Business Bank welcomes the evaluation report findings. The Enterprise Capital Funds programme was set up with the aim to address the equity funding gap for early stage UK businesses that have long-term growth potential. The evidence is clear that it is meeting its objectives; by enabling UK focussed fund managers to raise funds, scale up their operations and get more early-stage venture capital funding to innovative UK businesses.
“Early stage venture capital requires long-term, patient investment, and although many of the funds we have supported are yet to mature, there are clear signs the programme is delivering on its goals and is now an established and important part of the UK’s venture capital eco-system.”
UK venture capital ecosystem has been strengthened
The evaluation found that the UK’s VC ecosystem has been strengthened by supporting emerging fund managers to raise funds and become more established investors. Examining 14 ECF funds that started investing between 2011 and 2017, the report found they had raised a total of £651m with an average fund size of £47m. Fourty five percent of the total investments came from private sector investors, with each fund comprised of at least a third of private capital.
Fund managers interviewed for the evaluation reported that the British Business Bank’s role as an investor was the most critical factor in the success of their fund raise.
‘Equity gap’ being tackled with increased VC investment into UK early-stage companies
The evaluation found that 63% of ECF recipient businesses were either at the seed or start-up stage, 25% were early-stage and only 13% were later stage companies.
Furthermore, when looking at the wider UK equity market, ECF supported funds were found to invest at earlier stages than other VC investors with 35% of ECF-backed deals at the accelerator/incubator stage, compared to 22% of overall market, and 28% at seed stage, compared to 22% of overall market.
By the end of 2019, those companies being supported by the ECF programme raised an estimated £4.5bn in equity funding (including follow-on investments), with £480m of this total coming from ECFs, showing the programme is helping to unlock increased equity funding for these companies.
