Is your business ready for investment?


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Is your business ready for investment?

  1. 1. ADVANTAGE WEST MIDLANDS ANNUAL REPORT ON THE REGIONAL FINANCE FORUM AND ACCESS TO FINANCE INITIATIVES Non-confidential Objective i To update the Board on the objectives, achievements and plans of the Regional Finance Forum, and the key challenges for 2007/08 and beyond. Recommendations i This report is provided for information. Board members are asked to note its contents. 1. Background 1.1 Improving Access to Finance for businesses has been a significant part of successive iterations of the West Midlands Economic Strategy. To inform and drive this, the Regional Finance Forum (RFF) was established in 2001/2 with a vision to ensure that “innovation, entrepreneurship and business growth are not adversely affected due to a viable business being unable to access appropriate finance”. 1.2 The RFF is chaired by Norman Price and draws its membership (Annex 1) from a wide variety of knowledgeable representatives of the business financing chain in both the private and public sectors. 1.3 Since 2002, the RFF has overseen and advised on the implementation of the Regional Access to Finance Framework which is regularly reviewed and updated based on supporting evidence of the changing landscape of SME finance. The RFF provides advice on the responses which the Agency could make to such changes. 1.4 As a result of the implementation of actions identified as priorities within the Regional Access to Finance Framework the region now has a comprehensive range of Access to Finance initiatives (Annex 2). Most are externally managed, although the Agency’s Access to Finance team operates the Selective Finance for Investment in England grant scheme and the Grant for Research and Development (on behalf of DBERR and DIUS respectively). 1.5 A summary of the progress against the Regional Access to Finance Framework is at Annex 3 with details of the performance of these initiatives at Annex 4. 2. Activity in 2007/08 2.1 The principle areas of additional activity since the last annual report to the Board (26 November 2006) are as follows: • Injecting an additional £3 million into the Advantage Early Growth Fund; • Committing an additional £6.3 million (alongside £2.5 million of private sector funding) into the Mercia Technology Seed Fund; 1
  2. 2. • Developing and implementing a revised package of support for Business Angel activities designed to bring more active Business Angel networks into the region and increase the number of active Business Angel investors; • Securing European State Aid approval for Investbx and providing £3m to establish it as the first virtual trading platform of its kind in Britain to help small to medium businesses raise capital for growth, in exchange for shares; • Working with Business Link West Midlands to extend the Investment Readiness programme across the whole region; • Working with Business Link West Midlands and Impetus (one of the region’s CDFIs) to set up a Flood Recovery Loan product; • Commissioning an evaluation of the region’s Investment Readiness initiatives to inform the development of this service within Business Link West Midlands; • Commissioning an evaluation of the region’s CDFIs to establish how successfully they have addressed previously identified gaps in the provision of loan finance of up to £50,000; their sustainability and whether further support to CDFIs is required and, if so, what form that support should take; • Commissioning research on the availability of debt based finance in the region to identify if there is a gap over and above that being addressed by CDFIs which should be met through a successor to the Advantage Transition Bridge Fund; • Undergoing a Scrutiny Review of Access to Finance by the West Midlands Regional Assembly; • Contributing to the Agency’s successful Independent Performance Assessment; • Responding to BERR’s Consultation on Business Support Simplification; • Expressing concerns to Ministers with regard to the operation of the Small Firms Loan Guarantee Scheme and proposed changes to Capital Gains Tax; • Reviewing the Terms of Reference and Membership of the Regional Finance Forum. 2.2 These are discussed in more detail below. 2.3 The Advantage Early Growth Fund is a venture capital fund providing risk capital to Small and Medium Sized Enterprises (SMEs). It can invest up to £100,000 in a business at the first round funding stage, and up to £200,000 in an individual business in total. It can only invest alongside a private sector co- investor who invests at least as much as the Fund. In this way the Fund encourages business angels to invest in early stage businesses, thereby increasing the capital available to the business and bringing in expertise with the angel investor. It was originally a £4 million fund (with its cash coming from the Small Business Service), but it was investing significantly more quickly than anticipated. The Fund therefore approached the Agency for an additional £3 million of funding to enable it to invest throughout its planned investment period. Up to 30 September 2007 the Fund has invested £4.8 million into 40 businesses. 2.4 The Mercia Technology Seed Fund was the original West Midlands University Challenge Fund. It can invest up to £250,000 into early stage technology businesses, frequently university spin outs. It was originally a £4 million fund, intended to be evergreen. However, the early stage nature of its investments has meant that realisations have been much slower than anticipated, with the result that the Fund ran out of funds to invest. Accordingly West Midlands 2
  3. 3. Enterprise, the Fund Manager, approached the Agency to inject a further £3.8 million, and at the same time to invest £2.5 million into a new £5 million fund operating alongside the original University Challenge Fund. The remaining £2.5 million is being invested by private sector investors, including universities and others. The new fund will be able to invest up to £500,000, thereby giving the combined funds investment capacity of £750,000 into any one business. This enables the combined Fund to “follow its money” which protects investment values. Up to 30 September 2007 the Fund has invested a total of £4.2 million into 26 businesses. 2.5 Until 31 March 2007 our support for Business Angel activity had been channelled through Advantage Business Angels (ABA), which started as a consortium of the Business Angel networks active in the region in 2002/03. However, it effectively became the sole significant Angel Network operating in the region. Drawing on the recommendations of an evaluation of Advantage Business Angels and the levels of angel activity in the region, both actual and potential, we reshaped our business angel support from April 2007. As a result the cost to the Agency has been substantially reduced with no significant reductions in outputs and investment levels. In addition, a range of supporting activity aimed at increasing awareness of the benefits of business angel investment to both businesses and potential investors and attracting new investors is being delivered by ABA and two other business angel networks, Beer and Partners and Minerva Business Angels. 2.6 After securing State Aid approval from the European Commission, Investbx was established in July 2007 as the first virtual trading platform of its kind in Britain. Its purpose is to help small to medium businesses raise capital for growth, in exchange for shares. Investbx raises the equity on behalf of the companies, unlike traditional markets that rely on third parties. Admission to the trading platform is via a simplified process, created and developed by some of the leading professionals in the community. Investors are provided with independent research on which to base their investment decisions and, via an auction-driven platform, will have the capability to trade their shares. Investbx’s focus is on developing successful partnerships with companies, investors and advisers. Since opening the doors for business in July 2007, Investbx has been working to a very tight timetable in order to bring the first company to market in December 2007. Rigorous activity has been centred on preparing the first company and developing a community of potential investors. Working with the professional community it has now completed its first admission process and this has been refined as it has moved through the practical implementation. Momentum has been gathering with a number of companies being prepared to follow the launch company and the Investbx team are delighted with the quality of opportunities they are seeing. Similarly, through focused marketing and relationship building, it is securing more and more support from the investor community which is extremely encouraging. The critical path to success commences on Monday 19 November and will run through to the end of January 08, after which point it will be in a position to move forward with more listings. 2.7 Prior to 1 April 2007 the Agency contracted with Business Link and Connect/InvoRed for the provision of Investment Readiness services. From April 2007 Business Link has responsibility for managing the provision of information and advice and diagnosing business needs. If more intensive support is required this is brokered to third parties. Recently, it has contracted with Connect/InvoRed to provide a range of specialist Investment Readiness 3
  4. 4. services for high growth businesses and with a number of other providers for awareness raising and ‘education’ activity aimed at increasing engagement with businesses that it has not traditionally engaged with and which are known to face barriers to accessing finance (some minority ethnic businesses, women, rural and social enterprises). This reflects recommendations from the evaluation which we commissioned into the performance of the earlier Investment Readiness activities. This activity has started slowly under the new Business Link due to delays in contracting, but activity levels are expected to increase through the second half of the year. The programme is also now operating on a region-wide basis, having previously been largely restricted to the Objective 2 areas of the West Midlands. 2.8 Community Development Finance Institutions (CDFIs) continue to receive support under the Advantage Small Loans Programme (ASLP) to enable them to expand their lending to businesses requiring up to £50,000. Obtaining grant for this purpose has the effect of building the capital base of the CDFI and hence contributing to sustainability. In addition the Agency has made available funding of £1.8 million to provide loans to flood affected businesses. This is part of a package of support for businesses affected by the summer floods that is being delivered via Business Link. The loans are being delivered via one CDFI (Impetus). Up to 30 September 2007, 27 Expressions of Interest in obtaining loans had been received, of which 6 applications had been submitted with an overall value of £80k. 2.9 During the year we commissioned an evaluation of the performance of the region’s CDFIs in addressing previously identified gaps in the provision of loan finance up to £50,000. The evaluation has shown that, whilst the CDFIs have partly addressed these gaps, businesses in some parts of the region do not have access to this type of finance at all, or only for a certain range of lending. It confirmed that to address this and ongoing demand significant levels of public sector support will need to be provided for the foreseeable future. The review also identified resource and expertise issues which need to be addressed if effectiveness and efficiency are to be maximised. We shall be working with individual CDFIs and the Fair Finance Consortium (which draws them together) to see how these issues can be addressed at best value to public funds. 2.10 The Advantage Transition Bridge Fund (ATBF) was set up following the demise of MG Rover to lend to businesses severely affected by the collapse of MG Rover, which had viable business plans to stabilise the business and move forward, but which were unable to finance those plans from conventional sources. ATBF lent a total of £5.4 million to 20 businesses, safeguarding 1,413 jobs. Whilst some have since failed, a high proportion are performing well and indications are that the Fund will return at least the capital the Agency injected. The Regional Finance Forum has expressed its belief that there is a need for a more general loan fund to address businesses in transformation/transition with viable business plans but which are unable to obtain sufficient funding from conventional sources. We commissioned a report into this from West Midlands Enterprise, who have confirmed that a gap in provision does exist. Accordingly we have prepared an outline proposal to set up a Fund, initially capitalised via Agency and European (ERDF) funding at £8 million, but which could grow beyond that should the demand show that this is required. It is intended that further expansion of the Fund should be based on it securing private sector finance. We are aiming to send out a tender for the management of this Fund before Christmas, with a view to having it up and running by 1 April 2008. 4
  5. 5. 2.11 The Agency’s Access to Finance activities were subject to Scrutiny by the West Midlands Regional Assembly during the year. The Scrutiny recognised the considerable amount of activity delivered by the Agency, and made a number of recommendations. The recommendations, our response and action taken to date in respect of them are set out in Annex 5. 2.12 The Agency’s Independent Performance Assessment found that “The Agency is performing strongly on the Access to Finance agenda” reporting that “Good progress has been made to establish various growth funds and an Investment Readiness Programme. AWM have been acknowledged by OECD as playing a “pivotal coordinating and shaping role for Access to Finance in the West Midlands”. It also recognised the strength of the partnerships developed with the private sector “in establishing an extensive range of Investment and Venture Capital funds to provide a continuum of finance for SMEs and the support for business through the Business Links network”. It reported that “The Access to Finance initiative is highly regarded”. It commented that Investbx “will be a first for the RDAs and is seen by the EU as a very innovative project, which may be a valuable precedent for other Member States”. 2.13 In addition to its role in advising the Agency on issues regarding finance for SMEs and how to address them, the RFF also has a role in lobbying Government in respect to central government initiatives which may have an impact on the Access to Finance landscape. Recently letters have been sent by the Forum to Stephen Timms, Minister for Competitiveness at DBERR, expressing concern at the operation of the Small Firms Loan Guarantee Scheme and at the proposed changes to Capital Gains Tax announced in the Pre-Budget Report. 2.14 Finally, taking account of recommendations within the Regional Assembly’s report of its scrutiny of the Agency’s Access to Finance activity, changes to the Forum’s membership have been agreed and will formally take effect from 1 January 2008. Some existing members have decided to stand down and a number of new members have, or are in the process of being recruited. These include more business users via representatives from the West Midlands Business Council and those with links to other groups such as the Minority Ethnic Business Forum, Regional Women’s Enterprise Unit and Social Enterprise Network. Annex 1 shows the proposed make up of the Forum. The opportunity has also been taken to update the Forum’s Terms of Reference and introduce of a Code of Practice. 3. Challenges and Priorities for future years 3.1 The challenges and priorities for the future are: • Set up the successor to the Advantage Transition Bridge Fund (the Advantage Business Transformation Fund); • Set up an ongoing Proof of Concept funding product; • Plan and implement successor funds to the Advantage Early Growth Fund and the Advantage Growth Fund as they move out of investment mode; • Implement a rationalisation of the CDFI network in the region to ensure region-wide coverage at best value for public funds; • Continue to work with Business Link to ensure that an effective and efficient Investment Readiness Programme is provided which enables businesses to access the funding they need to grow and develop; 5
  6. 6. • Work with the Business Link Enterprise Brokerage to ensure appropriate funding to support start ups; • Work with the Social Enterprise Network to ensure appropriate funding to support social enterprises; • Continue to work at publicising and promoting the range of Access to Finance initiatives to ensure that they achieve the maximum benefit for the region; • Deliver these priorities in compliance with the Business Support Simplification Programme, which may be more prescriptive than we would like. 4. Conclusions 4.1 This has been an active and broadly successful year for the Regional Finance Forum with significant achievements in terms of implementing the revised Regional Finance Framework and ensuring that established initiatives continue to deliver. Recommendations i This report is provided for information. Board members are asked to note its contents. Paper prepared by: Patrick Palmer,Head of Access to Finance and Interim Director of Enterprise Paper presented by: Dr Richard Hutchins, Corporate Director, Economic Development Date: 27 November 2007 6
  7. 7. Annex 1: MEMBERSHIP OF THE REGIONAL FINANCE FORUM FROM JANUARY 2008 1. Chair Norman Price 2. Innovation Finance Ederyn Williams 3. Business Angel Bob Barnsley 4. Accountants Nigel Hastilow 5. Accountant - Practice Stuart Gray 6. Corporate Finance Jonathan Hall 7. Corporate Recovery John Kelly 8. Finance Broker Chris Brown 9. Womens Regional Enterprise Unit Sally Arkley 10. WM Social Enterprise Network Steve Walker 11. Bank of England John Bartlett 12. WM Business Link Lorraine Holmes/Tony Lucas 13. Enterprise Board David Rowe 14. Fair Finance Consortium Paul Kalinauckas 15. Minority Ethnic Business Forum Tony Sealey 16. Co-opted Bob Cox 17. West Midlands Business Council Mike Cherry - FSB 18. West Midlands Business Council Roger Trotman - EEF 19. Bank/Asset finance 20. Bank 21. VC 22. Markets 23. Corporate finance lawyer To be reviewed – may change to representative of the Local Authorities 24. Government Office Hanne Hoeck AWM Members 1. Corporate Director-Economic Development Richard Hutchins 2. Head of Access to Finance Patrick Palmer 3. Business Finance Executive Mike Watts 4. Access to Finance Team Co-ordinator Shaana Hutchins 5. Business Support Performance Manager Tony Sims 7
  8. 8. Annex 2: Helping to improve access to finance for businesses in the West Midlands Ensuring businesses have access to appropriate finance is key to an enterprising region. Entrepreneurs need finance to start new businesses and existing businesses need it to realise opportunities for growth. Accordingly, Advantage West Midlands has drawn together a Regional Finance Forum and Access to Finance Framework with the aim of ensuring that innovation, entrepreneurship and business growth are not adversely affected due to a viable business being unable to access appropriate finance. Advantage West Midlands' role in enabling access to finance involves identifying market failure and gaps in the supply of finance and working with the private sector to explore the most appropriate ways for these to be filled. This has led to the provision of a range of grants, loans and venture capital that provide businesses with funding, as follows: Regional SME focused financial initiatives with AWM support Equity based finance Neil Mackay Advantage Business Angels Tel: 0121 456 7940 Beer and Partners Business angel networks to bring entrepreneursSteve McEwen and companies, looking to raise £25k+ andTel: 01902892555 individual investors together. Minerva Business Angel Network Harry Stott Tel: 024 7632 3123 David Edmonds Equity fund focussed on creative industries that Advantage Creative Fund Tel: 01543 473 035 provides up to £250k investment. Dr Mark Payton Invests amounts of up to £750k as seed corn Mercia Technology Seed Fund WM Enterprise capital for businesses with a strong technology Tel: 0121 236 8855 base and intellectual property position. 8
  9. 9. Early stage equity fund which will provide £20kKevin Caley Advantage Early Growth Fund to £100k that must be matched by a privateTel: 07710 131 458 sector investment. Tony Stott Equity fund focused on high growth businesses Advantage Growth Fund Tel: 0121 710 1990 that provides up to £250k investment. Equity fund which will provide £250k to £1mJulie Newman Advantage Enterprise & Innovation that must be matched by private sectorTel: 0870 116 3000 Fund investment. First virtual trading platform of its kind in BritainPauline Davey Investbx to help businesses raise equity finance up to £2Tel: 0121 233 4903 million. Loan Finance For information on CDFIs - CDFIs provide loans of up to £50k to George Keenan Community Development Finance businesses which have a viable business plans Fair Finance Consortium Institutions (CDFIs) but are unable to obtain all or part of the Tel: 0121 230 1068 funding elsewhere. Provides loans of up to £10k to businesses withArrow – Small Business Finance a viable business proposition, but which haveAlison Bradley Arrow Fund been unable to raise funds through normalTel: 0121 607 0129 sources. Grants Technology Transfer Fund Grants of up to £25k for new and potential start-Birmingham Research and Development ups and existing Small Medium Enterprises Limited (SME's), working in the Advanced Materials Melanie Kaiser and Medical Technologies fields for activities Tel: 0121 414 8618 such as Business Planning, Protection of 9
  10. 10. Intellectual Property, Market Research, Final Prototyping Grants ranging from £2,500 to £500,000 to Richard Hanson Grants for Research and support technologically innovative research and Tel: 0121 503 3230 Development development projects in small and medium sized enterprises. Phil Baron Selective Finance for Investment in Tel: 0121 503 3271 Grants of £10,000 upwards to support capital England expenditure project which improve productivity, skills and employment. us/selective-finance-for-investment-in- england.aspx Further details of these and other sources of funding are now accessible via This website contains the most comprehensive regional database of financing for West Midlands SMEs and has a unique search facility enabling businesses to find the sources of finance most suitable to them. Is your business ready for investment? If you consider you need more personal advice and support, for example: • you need a better understanding of the various types of finance available • you want advice about what funders are looking for when assessing applications for funding; and how to present your proposition • you have a funding proposal but need some specialist help to ensure it is investment ready you should make contact with Business Link West Midlands – Investment readiness support for all types ofAnthony Andrews Investment Readiness SMEs (including access to services providedTel: 0845 113 1234 by Connect Midlands) 10
  11. 11. Annex 3: Progress against the Regional Access to Finance Framework Priority Actions Actions to date • Improve communication of Access to Finance • Many presentations made to relevant parties initiatives • Business Finance Conference held October 2006; second one will have taken place on 19 November 2007; • Birmingham Post article on Regional Finance Forum and Access to Finance initiatives. Follow up articles planned. • Build on R2i and InvoRed Investment Readiness • Evaluation received and conclusions shared with Business Link West programmes to develop “Best Practice” model Midlands which now manages the provision of these services. • Extend R2i Investment Readiness programme to • Done in conjunction with Business Link West Midlands. whole region • Rationalise and improve “Proof of Concept” • Spinner and Technology Transfer Fund extended. Plan to develop region- funding wide Proof of Concept provision from 1 April 2008 • Improve cooperation between the existing • Regular meetings of fund managers in place venture capital funds • Provide additional venture capital funding for • Total commitment of £6.3 million to the Mercia Technology Seed Fund, early stage science based businesses leveraging in an additional £2.5 million from the private sector. • Develop approach to venture capital funds as • Future action existing funds mature • Develop model for sustaining long term business • Implemented new Business Angel support programme with effect from 1 angel activity April 2007. • Obtain State Aid clearance for Investbx and • Now achieved. Investbx had a “soft launch” during Summer 2007 and launch shortly afterwards expects to raise finance for its first companies at the turn of the year. • Review requirements for start up support and • Future action in conjunction with the Enterprise Brokerage implement as appropriate • Extend Advantage Transition Bridge Fund to • Commissioned appropriate research. Outline approval for a broader enable it to lend into non-MG Rover related based Fund has been given. Work progressing on establishing this by 1 situations April 2008. • Review sustainability of CDFI activity and take • Commissioned appropriate research. Discussions to take forward appropriate action recommendations will take place during Winter 2007. • Review finance needs of social enterprises and • Discussions to take forward recommendations will take place with the take appropriate action Social Enterprise Network during Winter 2007. 11
  12. 12. Annex 4: Performance of Funds supported by AWM and Grant schemes administered by AWM Summary of investments made by VC funds as at 30th September 2007 Fund No Investments Av inv £ Bus' Av inv £ Size of Yet to be Other Av tot of made £ s Fund £ invested £ funding funding £ inv r'cv levered in £ g inv (incomplete) Mercia 1 69 3,655,020 52,971 22 166,137 7,800,000 4,144,980 12,176,000 719,592 Mercia Tech Seed 4 585,000 146,250 4 146,250 5,000,000 4,415,000 2,401,000 746,500 Creative 35 3,103,618 88,675 34 88,675 4,500,000 1,396,382 1,753,500 138,775 Early Growth 60 4,817,390 80,290 40 120,435 7,000,000 2,182,610 13,138,000 448,885 Growth 82 10,932,741 133,326 40 273,319 20,000,000 9,067,259 30,059,000 1,024,794 Ent & Innovation 5 2,309,847 461,969 5 461,969 20,000,000 17,690,153 3,325,000 1,126,969 Creative 13 1,460,000 112,308 13 112,308 1,460,000 0 112,308 Technology 28 8,256,700 294,882 24 344,029 8,256,700 0 22,255,000 1,271,321 TOTAL 296 35,120,316 118,650 182 191,914 74,016,700 38,896,384 85,107,500 656,983 Fund Status of Investments made Green Amber Red Failed Sold TOTAL No % No % No % No % No % MERCIA 1 11 50 5 23 1 5 4 18 1 5 22 MERCIA Tech Seed 2 4 100 0 0 0 0 0 0 0 0 4 ACF 9 26 8 24 7 21 9 26 1 3 34 AEGF 19 48 7 18 4 10 10 25 0 0 40 AGF 11 28 11 28 8 20 9 23 1 3 40 AEIF 2 40 2 40 1 20 0 0 0 0 5 CAF 2 15 1 8 1 8 5 38 4 31 13 ATF 5 21 1 4 7 29 2 8 9 38 24 TOT 63 35 35 19 29 16 39 21 16 9 182 12
  13. 13. Investments by publicly support Venture Capital Funds & Business Angel Networks based in the region- by area. AREA TOTAL INV BY FUNDS TOT INV BY BA’s TOTAL INVESTED £ £ £ COVENTRY 11,072,183.00 435,000.00 11,507,183.00 BIRMINGHAM 9,674,400.00 737,500.00 10,411,900.00 WORCESTERSHIRE 4,543,354.00 2,291,395.00 6,834,749.00 STAFFORDSHIRE INC STOKE 3,658,617.00 297,500.00 3,956,117.00 WARWICKSHIRE 3,132,477.00 231,000.00 3,363,477.00 DUDLEY 801,326.00 498,997.00 1,300,323.00 SHROPSHIRE 578,348.00 50,000.00 628,348.00 WOLVERHAMPTON 529,615.00 64,583.00 594,198.00 HEREFORDSHIRE 299,995.00 185,000.00 484,995.00 WALSALL 405,000.00 35,000.00 440,000.00 TELFORD 250,000.00 0.00 250,000.00 SOLIHULL 0.00 215,000.00 215,000.00 SANDWELL 175,000.00 0.00 175,000.00 TOTAL 35,120,315.00 5,040,975.00 40,161,290.00 Area FUNDS BUSINESS ANGELS TOTAL COVENTRY AND WARWICKSHIRE 14,204,660.00 666,000.00 14,870,660.00 BIRMINGHAM AND SOLIHULL 9,674,400.00 952,500.00 10,626,900.00 HEREFORD AND WORCS 4,843,349.00 2,476,395.00 7,319,744.00 STAFFORDSHIRE INC STOKE 3,658,617.00 297,500.00 3,956,117.00 BLACK COUNTRY 1,910,941.00 598,580.00 2,509,521.00 SHROPSHIRE INC TELFORD 828,348.00 50,000.00 878,348.00 TOTAL 35,120,315.00 5,040,975.00 40,161,290.00 13
  14. 14. INVESTMENTS BY PUBLICLY SUPPORTED VC FUNDS AND BUSINESS ANGELS BY AREA 14,000,000.00 11,507,183.00 12,000,000.00 10,411,900.00 10,000,000.00 8,000,000.00 6,834,749.00 6,000,000.00 3,956,117.00 3,363,477.00 4,000,000.00 1,300,323.00 2,000,000.00 594,198.00 440,000.00 215,000.00 628,348.00 484,995.00 250,000.00 175,000.00 0.00 E LL Y E Y AM D L L KE N E E L EL IR LE IR TR IR R IR O U SA O O H PT H SH SH H H W D N ST G LF PS AL KS LI U VE D AM IN D R D SO TE N W O C R IC TE M O SA H IN R O R W C ER ES SH EF BI E AR IR C LV ER R W SH O O H W W D R FO AF ST 14
  15. 15. INVESTMENTS BY PUBLICLY SUPPORTED VENTURE CAPITAL FUNDS AND BUSINESS ANGELS 16,000,000.00 14,870,660.00 14,000,000.00 12,000,000.00 10,626,900.00 10,000,000.00 8,000,000.00 7,319,744.00 6,000,000.00 3,956,117.00 4,000,000.00 2,509,521.00 2,000,000.00 878,348.00 0.00 COVENTRY AND BIRMINGHAM AND HEREFORD AND STAFFORDSHIRE BLACK COUNTRY SHROPSHIRE INC WARWICKSHIRE SOLIHULL WORCS INC STOKE TELFORD 15
  16. 16. Lending by alternative finance providers such as Community Development Finance Institutions (CDFIs) Lender Area served Lending Lending Lending Lending 2007/8 Total 1/4/05 to range 2005/6 2006/7 30/9/07 Act to Act to £k 30/9/07 30/9/07 No £k No £k No £k No £k Aston Reinvestment Trust * Birmingham & 10 to 50 72 1,028 34 743 26 520 132 2,291 Solihull 3b Birmingham & 7.5 to 10 20 142 7 49 0 0 27 191 Solihull Black Country Enterprise Black Country 0.5 to 10 50 268 33 204 13 73 96 545 Loan Fund Black Country Reinvestment Black Country 10 to 50 19 317 16 377 6 189 41 883 Society * Coventry and Warwickshire Coventry & 1 to 40 36 402 14 183 21 123 71 708 RT * Warks IMPETUS (Marches Rural Here, Worcs 1 to 50 13 260 10 205 5 124 28 589 RT)* and Shrops North Staffs Risk Capital North Staffs 10 to 70 7 389 8 396 3 80 18 865 Fund* Lending by CDFIs 217 2,806 122 2,157 74 1,109 413 6,072 Arrow Fund* Birmingham 1 to 7.5 13 47 14 102 16 116 43 265 and Solihull Michelin Development Fund North Staffs 5-50k 9 215 12 320 6 90 27 625 Total Lending excl Princes 239 3,068 148 2,579 96 1,315 483 6,962 Trust Princes Trust Regional 1to 5 500 1,200 427 1,250 190 540 1,117 2,990 TOTAL lending in WM 739 4,268 575 3,829 286 1,855 1,600 9,952 (* These lenders are directly supported by the Agency via grant funding from the Advantage Small Loan Programme – at present this only supports lending in areas designated as Objective 2 for funding from the European Regional Development Fund - ERDF) 16
  17. 17. LOANS MADE BY ALTERNATIVE FINANCE PROVIDERS, EXCLUDING THE PRINCES TRUST FROM 1/4/05 TO 30/9/07 BY SUB REGION LENDERS ARE COMMUNITY DEVELOPMENT FINANCE INSTITUTIONS (CDFI's) and THE ARROW FUND 3,000 2,747 2,500 2,000 1,490 1,500 1,428 1,000 708 589 500 202 137 45 71 28 0 Hereford, Worcs and Birmingham and Solihull North Staffordshire Black Country Coventry and Warwickshire Shrops £k 2,747 1,490 1,428 708 589 No 202 45 137 71 28 17
  18. 18. Selective Finance for Investment in England 6 months ended 30 Sept 2007 6 months ended 30 Sept 2006 Applications received – number 57 61 Applications received – value (£’000) 9,783 8,778 Offers made – number 56 51 Offers made – value (£’000) 6,692 9,568 Offers made – related capital expenditure (£’000) 44,803 61,428 Offers made – jobs to be created 333 762 Offers made – jobs safeguarded 329 577 Cost per job (£) 10,108 7,146 Grant offered as % of capital expenditure 14.9% 15.6% Grant paid – amount (£’000) 2,944 3,967 Grant paid - Related capital expenditure (£’000) 24,744 47,437 Grant paid – jobs created / safeguarded 927 1,044 Applications received are similar to last year in both number and value. Offers made, whilst being similar in number, are significantly lower in value than last year, when there were some Board sized cases brought forward from the previous year. The cost per job increases the greater the number of sub-£100,000 offers made because job creation is not a requirement at that level. Grant for Research and Development (GRD) 6 months ended 30 Sept 2007 6 months ended 30 Sept 2006 Applications received – number 23 16 Applications received – value (£’000) 1,737 1,013 Offers made – number 13 8 Offers made – value (£’000) 1,392 333 Grant paid (£’000) 468 553 Grant paid – related expenditure (£’000) 1,198 1,474 Activity levels up on last year; DIUS about to commission an evaluation of the scheme; some amendment of intervention rates anticipated; significant work still to be done on “Innovation Finance” product within the portfolio of Business Support products. NB Statistics of grant offers by area are being compiled 18
  19. 19. Annex 5: Advantage West Midlands response to WMRA Recommendations from the Scrutiny Review of Access to Finance WMRA Recommendations Advantage West Midlands Response to Progress on Actions as at 30th WMRA Recommendations September 2007 R1 That the Regional Finance We agree with this recommendation. The Proposals for changes to Terms of Forum, within its current review of Regional Finance Forum embarked on a review Reference and Membership of the Forum governance arrangements, of its operations, including its membership, in were agreed at its meeting in July 2007. It considers directly nominated and January 2007. An interim report was considered was agreed that these will be formally appropriate representation from at the Forum’s April 2007 meeting and a final adopted from January 2007. The changes business users. We would request report is expected to be approved at the include seeking two ‘business user’ and urge that new members are in Forum’s July 2007 meeting. The nominations from the West Midlands place by January 2008. recommendations include more explicit Business Council and representatives from representation from user groups to complement business related Forums such as the the existing focus on finance providers and Minority Ethnic Business Forum, the advisers. We would point out, though, that the Regional Womens Enterprise Unit and Forum’s current membership includes at least Social Enterprise Network, in addition to two members who have strong connections with private and public sector intermediaries the West Midlands Business Council, so there who are directly working with businesses has been user representation, even if not as seeking finance. A copy of the updated part of the explicit definition of the membership. membership list is at Annex 1. R2 That AWM ensures that the We agree with this proposal. It is already the As stated, the provision of Investment delivery of investment readiness case that the Investment Readiness programme Readiness services including awareness activity is an integral part and is subject to a specific contract between AWM raising and support via the measurable output of Business Link and Business Link West Midlands with targets website West Midlands. This should be related to businesses receiving awareness and and other marketing and promotion related reflected in the formal contracts with education, businesses receiving complex activity is already included in the current Business Link providers. development and post investment support and contract with Business Link West Midlands. businesses accessing finance. In addition the The Access to Finance Team will ensure overriding contracts with the Business Link that the delivery of investment readiness providers include other required outputs, activity remains an integral part and particularly in the area of the number of measurable output of Business Link West businesses to which “Intensive Assistance” is Midlands when formal contract provided and the increase in Gross Value negotiations take place regarding activity Added (GVA) achieved by those businesses. and funding from 1st April 2008. 19
  20. 20. R3 That Advantage West Midlands We agree with this recommendation. As a key Partners within the Regional Skills engages with regional education partner within the Regional Skills Partnership, Partnership (including local authorities) are providers to enable the development Advantage West Midlands already engages with about to publish the latest annual Regional of the necessary business skills set the regional education and skills providers, Skills Assessment. The Assessment necessary to enhance the regional funders and businesses. reflects views from employers and enterprise culture from Primary As part of this work the Regional Skills employer networks about the current and Schools onwards. Partnership, including the local authorities, is future skill needs of employers, individuals contributing to the review of the Regional and the regional economy. The Economic Strategy. This includes the Assessment is used by public sector opportunity to strengthen the linkages between funders of skills – including the LSC, skills, innovation and enterprise and to work HEFCE, AWM and European Social Funds with employers to develop the higher-level skills to align skills provision with demand. they need to move into new markets with higher value-added products and services. Partners are also playing an active role in In addition, Advantage West Midlands is ensuring that skills issues are fully working with partners to develop and deliver a reflected in the review of the Regional fully integrated business support service that Economic Strategy and will be working with works with businesses to develop the skills and local authorities to explore the implications competencies they need to improve business on skills of the sub national review and the performance and develop higher value added proposals to strengthen the economic products and services. development role of local authorities. R4 That the West Midlands Regional We agree with this recommendation. As stated Scrutiny is scheduled but has not yet Assembly, within the scrutiny review above, we are concentrating the Agency’s started. For West Midlands Regional of AWM’s support for the skills resources on ensuring effective linkages Assembly (WMRA) to agree with the agenda should examine how their between skills, innovation and enterprise and Agency’s skills team. interventions support the working with employers to develop the higher- development of core skills for level skills they need to move into new markets business. with higher value-added products and services. We therefore believe that the focus of our Skills policy reflects the West Midlands Regional Assembly’s interest in this area and we shall welcome discussing this with you in the course of the Scrutiny. R5 That AWM, in implementing the We recognise that communication can always A briefing paper setting out proposals for 20
  21. 21. Independent Performance be improved. We have made efforts to an Access to Finance Marketing and Assessment Improvement Plan, communicate the Access to Finance initiatives, Promotion Plan has been prepared for the seeks to secure a greater in particular through the Regional Finance Forum meeting on 26th awareness and understanding of portal, the region’s October 2007 (see Agenda Items 3c(i) provision of Access to Finance Investment Readiness programmes, articles in initiatives. The proposed Business Advantage and through presentations methodology to be presented to the to various groups such as Accountants, Regional Finance Forum by October Professional Services groups, Cluster 2007. conferences and others. We believe that the consolidation of the region’s Business Links into a single operation comprising Gateway, Brokerage and specialist Manufacturing Brokerage, the consolidation of the portal into the main website and the extension of the R2i Investment Readiness programme to cover the whole region will also contribute to greater awareness, understanding and success in securing appropriate finance. In addition we shall make the Business Finance Conference an annual event and shall continue to publicise Access to Finance initiatives through a range of other media. R6 That AWM investigates the The fundamental issue is whether or not Small See comments in Column 2. This is not feasibility of establishing and and Medium Sized Enterprises (SMEs) have currently regarded as a priority action. operating a Regional Development access to the finance they need to grow and Bank as a pilot project as part of the develop. In the West Midlands we now have a development of the Action Plan for range of sources of finance backed by the the revised West Midlands public sector ranging from Community Economic Strategy. Development Finance Institutions (CDFIs) and the Small Firms Loan Guarantee Scheme to a comprehensive range of equity gap venture capital funds and business angel support schemes. In a way we therefore already have a 21
  22. 22. network of provision which could be said to be a virtual Regional Development Bank. Whether putting these into a formal structure would make more effective provision of appropriate finance is questionable. However, as noted above we have already commissioned a review looking at the adequacy of provision of debt-based finance. We have also commissioned a further review into the effectiveness and sustainability of the region’s CDFIs. The terms of reference of both reviews request not only consideration of the adequacy of current provision but also recommendations as to the structure through which any proposals should be implemented. In addition in 2007/08 we shall be commissioning a review of the region’s venture capital funds with a view to identifying the most appropriate action to take as they move out of investment mode. Again this will include a request for recommendations as to how best to implement any proposed actions. We will therefore receive recommendations which will contribute to our thinking regarding a Regional Development Bank, but we would prefer at this stage to concentrate on ensuring the provision of appropriate financing options rather than committing to a Regional Development Bank. R7 That the Regional Finance We agree with this recommendation. We An Annual Report is being prepared for Forum, as a means of securing already produce an annual report for the submission to the AWM Board meeting in continued engagement, provide an Advantage West Midlands Board (in November November. This will form the basis for a annual report for the basis of of each year) and we shall make this available more widely circulated Report. discussion with appropriate through the Agency’s website. In addition we interested parties including the shall give consideration to developing this report Regional Economic Development further as a publication, providing not only a 22
  23. 23. Officers Group and the West bottom up view of the impact of the Agency’s Midlands Business Council interventions but also a macro view of changes commencing in January 2008. in the region’s finance activity over the year. R8 That the West Midlands Regional We agree with this recommendation. We accept For the WMRA to schedule and agree with Assembly undertakes a scrutiny that the performance of Business Link West AWM. review, commencing in May 2008, of Midlands will be a key factor in securing a Business Link West Midlands. greater awareness and understanding of provision of Access to Finance initiatives in the region and supporting businesses in accessing appropriate finance, whether from the public or private sectors. R9 That the Department for We share your concerns regarding the A letter was sent to Stephen Timms, Business, Enterprise and Regulatory operation of the Small Firms Loan Guarantee Minster for Competitiveness at DBERR on Reform undertakes an urgent and Scheme following the implementation of the 15th October setting out the Regional fundamental review of the Small recommendations of the Graham Review which Finance Forum’s concerns over SFLG. Firms Loan Guarantee Scheme. were put into effect from 1 December 2005. We regard it as, potentially, a very effective tool to assist businesses which have inadequate security to obtain mainstream banking facilities. We have ourselves commissioned a review entitled “An assessment of the extent of market failure in the provision of debt-based finance” and this should give us information on shortcomings in the current operation of the Scheme. In addition the first Annual Report on the Small Firms Loan Guarantee Scheme is to be tabled in Parliament prior to the Summer recess. A further related matter is that the Department for Business, Enterprise and Regulatory Reform (formerly the Department of Trade and Industry) have recently (on 22 June 2007) launched a Consultation entitled “Simplifying Business Support: A Consultation”. This Consultation explicitly asks whether the 23
  24. 24. business support outlined in it (which includes “Loan finance for young businesses” via a guarantee mechanism) covers the key needs of business. Based on the outcome of our own review and on the information contained in the Annual Report we shall determine – with partners - what response to make to the Consultation and also the approach to adopt with the Department for Business, Enterprise and Regulatory Reform on our and your concerns regarding the Small Firms Loan Guarantee Scheme. 24