Finance  for Business North East Fund
Andrew Davison
Margaret Fay OBE
Robert Drummond Finance for Business North East
Robert Drummond <ul><li>1972 3i – Leeds & London Regional Director </li></ul><ul><li>1984 NatWest Ventures  - MD </li></ul...
Why Build Business on Debt? <ul><li>Leverage or gearing increases returns but the risk is greater </li></ul><ul><li>Debt a...
Banks & Excessive Risk – Why? <ul><li>Bank Execs Bonuses Long Term ? </li></ul><ul><li>Public House price volatility Cycli...
Court Cavendish  1988/89 £26m
UK VC Development <ul><li>1945 Early Days </li></ul><ul><li>ICFC, Gresham Trust, Charterhouse, Merchant Banks </li></ul><u...
The VC & PE World in Mid 2008 <ul><li>USA  60% </li></ul><ul><li>Europe 30% </li></ul><ul><li>Of which UK  15%  </li></ul>...
 UK  Private Equity Statistics 2007 <ul><li>1330 UK companies backed with £12bn </li></ul><ul><li>£29bn raised - 75% came ...
Deals Today <ul><li>Deal Size Driven By   Operators </li></ul><ul><li>0  - £200K  Micro  Privacy BAngels Subsidised </li><...
2007 UK Venture Capital Data
2007 UK Venture Capital Data
Where is the equity gap? <ul><li>Rowlands review says £2m-£10m </li></ul><ul><li>I believe it is £1m-£5m </li></ul><ul><li...
Why is Equity so Contentious? <ul><li>Big Companies can raise it cheaply and shareholders rarely complain </li></ul><ul><l...
Why is there an Equity Gap? <ul><li>Traditionally it is blamed on Risk v Reward </li></ul><ul><li>Business Angels and VCs ...
The real reasons for the Equity Gap <ul><li>Cost v Reward </li></ul><ul><li>Migration </li></ul><ul><li>Time Factors </li>...
Why is there an Equity Gap? <ul><li>Perception of Risk/Reward </li></ul><ul><li>Short termism by Investors </li></ul><ul><...
The Cure to the Equity Gap <ul><li>No simple solutions </li></ul><ul><li>A New ICFC </li></ul><ul><li>Better structured fu...
Importance of VC v Grants <ul><li>Direct Employment </li></ul><ul><li>Supplier Employment </li></ul><ul><li>Local Wealth C...
Regional Performance Issues <ul><li>Organisation Size & Sophistication Inadequate? </li></ul><ul><li>Quality of fund manag...
Andrew Mitchell
A New Identity <ul><li>Moving forward the JEREMIE Funds will be known as the… </li></ul>Finance for Business  North East F...
Finance for Business North East Key Features <ul><li>£125m fund (£62.50m EIB; £62.50m ERDF / ONE) </li></ul><ul><li>One No...
Objectives <ul><li>Investment in circa 850 SMEs </li></ul><ul><li>5,000+ jobs </li></ul><ul><li>Generating significant pri...
Finance for Business North East - What’s New? <ul><li>Scale & ambition - £125m of capital over five years </li></ul><ul><l...
Finance for Business North East - What’s New? <ul><li>First of its kind in the English regions </li></ul><ul><li>Engagemen...
What Finance for Business North East is not! <ul><li>These are  investment  funds not grant schemes – the managers are loo...
Who will be doing what? <ul><li>North East Finance </li></ul><ul><ul><ul><ul><li>- Will manage the ‘umbrella’ holding fund...
What does this mean to you? <ul><li>Competition and choice on your doorstep </li></ul><ul><li>The most dynamic early-stage...
Finance for Business   North East Funds
The Funds <ul><li>North East Technology Fund </li></ul><ul><li>£25m fund </li></ul><ul><li>Focussed on technology </li></u...
The Funds <ul><li>North East Accelerator Fund </li></ul><ul><li>£20m fund - all eligible business sectors </li></ul><ul><l...
The Funds <ul><li>North East Growth Plus Fund </li></ul><ul><li>£20m fund – all eligible business sectors </li></ul><ul><l...
 
Duncan Lowery Funding available up to £1.25M
Marion Bernard Funding available up to £1.25m
Dr Richard Exley Funding available between £50,000- £150,000
Barrie Hensby Funding available between £50,000-£400,000
Peter Wright Funding available up to £1.25M
Steve Garbutt   Funding available between £50,000-£150,000
Peter Robinson Helping companies
 
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  1. 1. Finance for Business North East Fund
  2. 2. Andrew Davison
  3. 3. Margaret Fay OBE
  4. 4. Robert Drummond Finance for Business North East
  5. 5. Robert Drummond <ul><li>1972 3i – Leeds & London Regional Director </li></ul><ul><li>1984 NatWest Ventures - MD </li></ul><ul><li>1990 Grosvenor Ventures – MD </li></ul><ul><li>Chairman of BVCA - TV Series The Adventurers </li></ul><ul><li>1994 Business Angel, NED & Expert Witness </li></ul><ul><li>National Business Angel Network </li></ul><ul><li>2004 Chrysalis VCT Plc - Ch </li></ul><ul><li>2009 N East Finance –Advisory Board Ch </li></ul><ul><li>NED of AIM listed and private companies </li></ul>
  6. 6. Why Build Business on Debt? <ul><li>Leverage or gearing increases returns but the risk is greater </li></ul><ul><li>Debt avoids dilution of shareholders </li></ul><ul><li>High debt companies can grow faster? </li></ul><ul><li>High debt companies are less interesting to predators? </li></ul>
  7. 7. Banks & Excessive Risk – Why? <ul><li>Bank Execs Bonuses Long Term ? </li></ul><ul><li>Public House price volatility Cyclical Economy High Tax </li></ul><ul><li>Government Long Term disaster but can help re-election </li></ul><ul><li>Investors Short Term Gains Long Term Losses </li></ul><ul><li>Large Cos Short Term Growth Long Term Decline </li></ul><ul><li>Private Equity Heads we win tails you lose </li></ul><ul><li>Small Cos A mirage that evaporates </li></ul><ul><li>Venture Capital No benefit except timing skills count </li></ul>What Effect Does It Have on the Community?
  8. 8. Court Cavendish 1988/89 £26m
  9. 9. UK VC Development <ul><li>1945 Early Days </li></ul><ul><li>ICFC, Gresham Trust, Charterhouse, Merchant Banks </li></ul><ul><li>1970 Maturity of People & Methods </li></ul><ul><li>Option demise, Skill sets improve </li></ul><ul><li>1980 Rapid Growth </li></ul><ul><li>US VC Invasion, Law on Buy-outs, BVCA 1 st BUST UK Economics </li></ul><ul><li>1990 Deal Size Growth </li></ul><ul><li>LBO Funds, Syndication ends, Advisors rule 2 nd BUST IT & Tech </li></ul><ul><li>2000 Private Equity v Venture Capital </li></ul><ul><li>Market driven, Soft Debt, Greed & Short Term 3 rd BUST World Leverage </li></ul>
  10. 10. The VC & PE World in Mid 2008 <ul><li>USA 60% </li></ul><ul><li>Europe 30% </li></ul><ul><li>Of which UK 15% </li></ul><ul><li>Rest of the World 10% </li></ul>
  11. 11. UK Private Equity Statistics 2007 <ul><li>1330 UK companies backed with £12bn </li></ul><ul><li>£29bn raised - 75% came from overseas mostly US </li></ul><ul><li>£5.4bn fees – 28% Corp Legal </li></ul><ul><li>9300 Execs Direct 6200 Indirect 20,000 others </li></ul>
  12. 12. Deals Today <ul><li>Deal Size Driven By Operators </li></ul><ul><li>0 - £200K Micro Privacy BAngels Subsidised </li></ul><ul><li>£200k - £2m V Small Privacy/Tax BAs VCTrusts </li></ul><ul><li>£2m - £20m Small Equity Returns Trad VC Cos </li></ul><ul><li>£20m-£200m Medium VC/PrivEq TradVC LB Funds </li></ul><ul><li>£200m- £2bn Large Markets/Fees LBFunds HedgeF </li></ul><ul><li>>£2bn V Large Markets/Fees HedgeF Inv Banks </li></ul>
  13. 13. 2007 UK Venture Capital Data
  14. 14. 2007 UK Venture Capital Data
  15. 15. Where is the equity gap? <ul><li>Rowlands review says £2m-£10m </li></ul><ul><li>I believe it is £1m-£5m </li></ul><ul><li>ICFC/3i 1970s/80s </li></ul><ul><li>AIM market in good times </li></ul><ul><li>Few subsidized funds or Angel funding above £1m </li></ul><ul><li>Current market Conditions </li></ul>
  16. 16. Why is Equity so Contentious? <ul><li>Big Companies can raise it cheaply and shareholders rarely complain </li></ul><ul><li>Small companies are different and fight to retain management and shareholder control </li></ul><ul><li>The Equity Gap is real but misunderstood </li></ul>
  17. 17. Why is there an Equity Gap? <ul><li>Traditionally it is blamed on Risk v Reward </li></ul><ul><li>Business Angels and VCs know better </li></ul><ul><li>Some believe there is plenty available </li></ul><ul><li>Others believe that the suppliers are too greedy </li></ul>
  18. 18. The real reasons for the Equity Gap <ul><li>Cost v Reward </li></ul><ul><li>Migration </li></ul><ul><li>Time Factors </li></ul><ul><li>Rapid Decisions </li></ul><ul><li>Long Investment & Exit Cycles </li></ul><ul><li>Lemons and Plums </li></ul><ul><li>Banking Behaviour </li></ul>
  19. 19. Why is there an Equity Gap? <ul><li>Perception of Risk/Reward </li></ul><ul><li>Short termism by Investors </li></ul><ul><li>Migration of fund managers </li></ul><ul><li>Bad banking and company greed </li></ul>
  20. 20. The Cure to the Equity Gap <ul><li>No simple solutions </li></ul><ul><li>A New ICFC </li></ul><ul><li>Better structured funds </li></ul><ul><li>“ Better” Paid Managers </li></ul><ul><li>More enlightened investors </li></ul><ul><li>Greater regional involvement </li></ul>
  21. 21. Importance of VC v Grants <ul><li>Direct Employment </li></ul><ul><li>Supplier Employment </li></ul><ul><li>Local Wealth Creation </li></ul><ul><li>Fund Recycling </li></ul><ul><li>Regional VC </li></ul><ul><li>√√√ </li></ul><ul><li>√√√ </li></ul><ul><li>√√√ </li></ul><ul><li>√√√ </li></ul>Grant √√√ √ X X
  22. 22. Regional Performance Issues <ul><li>Organisation Size & Sophistication Inadequate? </li></ul><ul><li>Quality of fund managers affected by migration </li></ul><ul><li>Fund limitations - market size and continuity </li></ul><ul><li>Further fund rounds and exit problems </li></ul><ul><li>The NE JEREMIE Fund has dealt with all of these </li></ul><ul><li>RMD </li></ul><ul><li>2010 </li></ul>
  23. 23. Andrew Mitchell
  24. 24. A New Identity <ul><li>Moving forward the JEREMIE Funds will be known as the… </li></ul>Finance for Business North East Funds
  25. 25. Finance for Business North East Key Features <ul><li>£125m fund (£62.50m EIB; £62.50m ERDF / ONE) </li></ul><ul><li>One North East / ERDF covering fund management costs </li></ul><ul><li>Private Sector model </li></ul><ul><li>2 Company Structure: </li></ul><ul><ul><li>Holding Fund Company </li></ul></ul><ul><ul><li>Legacy Fund Company </li></ul></ul><ul><li>Fund of Funds: </li></ul><ul><ul><li>Currently six Funds……possibly more to come </li></ul></ul><ul><ul><li>Continuum of Finance </li></ul></ul><ul><ul><li>Flexibility </li></ul></ul>
  26. 26. Objectives <ul><li>Investment in circa 850 SMEs </li></ul><ul><li>5,000+ jobs </li></ul><ul><li>Generating significant private sector co-investment </li></ul><ul><li>Wider impact in marketplace (professional & support services) </li></ul><ul><li>£100m Legacy Fund to secure venture capital provision to 2025 </li></ul><ul><li>Relationship with European Investment Bank </li></ul><ul><li>Financial and economic development returns </li></ul>
  27. 27. Finance for Business North East - What’s New? <ul><li>Scale & ambition - £125m of capital over five years </li></ul><ul><li>Holistic and coherent response to equity gap for high growth businesses in the region </li></ul><ul><li>Covering all eligible business sectors </li></ul><ul><li>Prospect of significant legacy returns to support future venture capital provision in region over very long term </li></ul>
  28. 28. Finance for Business North East - What’s New? <ul><li>First of its kind in the English regions </li></ul><ul><li>Engagement of major multinational partners:- </li></ul><ul><ul><li>European Investment Bank – Triple A* rated institution </li></ul></ul><ul><ul><li>EIF – largest investor in early stage VC in EU </li></ul></ul><ul><li>High calibre Investment Advisory Board (including 2 x former chairs of British Venture Capital Association) </li></ul><ul><li>Step-change in regional fund management capacity </li></ul><ul><li>Existing providers (NorthStar Equity Investors & NEL) </li></ul><ul><li>New entrants (IP Group, FW Capital & Rivers Capital Partners) </li></ul>
  29. 29. What Finance for Business North East is not! <ul><li>These are investment funds not grant schemes – the managers are looking for a capital return on their investment </li></ul><ul><li>They are not suitable for all businesses – talk to your accountant, lawyer or to Business Link (BENE) if you need advice </li></ul><ul><li>The evaluation and due diligence process will be comprehensive and thorough so things won’t happen overnight (usually 2 months +) </li></ul><ul><li>The funds are there to support long-term future growth - the money cannot be used to rescue difficult situations </li></ul>
  30. 30. Who will be doing what? <ul><li>North East Finance </li></ul><ul><ul><ul><ul><li>- Will manage the ‘umbrella’ holding fund </li></ul></ul></ul></ul><ul><ul><ul><ul><li>- NOT involved in day-to-day investment decisions </li></ul></ul></ul></ul><ul><ul><ul><ul><li>The fund managers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>- IP Group; NorthStar Equity Investors; NEL, FW Capital; Rivers Capital Partners </li></ul></ul></ul></ul><ul><ul><ul><ul><li>- All FSA regulated </li></ul></ul></ul></ul><ul><ul><ul><ul><li>- They will make the individual investment decisions </li></ul></ul></ul></ul><ul><ul><ul><ul><li>ONE NorthEast and the European Investment Bank </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>- Investors / stakeholders </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>- Not involved in operation of the Fund </li></ul></ul></ul></ul></ul>
  31. 31. What does this mean to you? <ul><li>Competition and choice on your doorstep </li></ul><ul><li>The most dynamic early-stage venture capital market outside London </li></ul><ul><li>Access to specialist investors with expertise in all sectors and development phases </li></ul><ul><li>New channels to global investors and capital markets </li></ul><ul><li>Availability of VC for the right opportunities through to 2015 </li></ul><ul><li>Exciting opportunities for business angels and other co-investors </li></ul>
  32. 32. Finance for Business North East Funds
  33. 33. The Funds <ul><li>North East Technology Fund </li></ul><ul><li>£25m fund </li></ul><ul><li>Focussed on technology </li></ul><ul><li>Investing up to £1.25m – mainly equity </li></ul><ul><li>Managed by IP Group </li></ul><ul><li>North East Proof of Concept Fund </li></ul><ul><li>£15m fund </li></ul><ul><li>Primarily technology </li></ul><ul><li>Very early-stage start-ups and projects – investing £20-150k </li></ul><ul><li>Managed by NorthStar Equity Investors </li></ul>
  34. 34. The Funds <ul><li>North East Accelerator Fund </li></ul><ul><li>£20m fund - all eligible business sectors </li></ul><ul><li>Early-stage businesses with high growth potential </li></ul><ul><li>Typical investment range £200-750k </li></ul><ul><li>Managed by NorthStar Equity Investors </li></ul><ul><li>North East Growth Fund </li></ul><ul><li>£20m fund – all eligible business sectors </li></ul><ul><li>Established businesses requiring development capital </li></ul><ul><li>Typical investment £150-200k – mezzanine & equity </li></ul><ul><li>Managed by NEL </li></ul>
  35. 35. The Funds <ul><li>North East Growth Plus Fund </li></ul><ul><li>£20m fund – all eligible business sectors </li></ul><ul><li>Established businesses requiring larger sums of development capital </li></ul><ul><li>Typically investing £500k – maximum £1.25m </li></ul><ul><li>Managed by FW Capital </li></ul><ul><li>North East Angel Fund </li></ul><ul><li>£7.5m fund – all eligible sectors </li></ul><ul><li>Start-ups and early-stage businesses </li></ul><ul><li>Focus on working with business angels </li></ul><ul><li>Typically £50-150k </li></ul><ul><li>Managed by Rivers Capital Partners </li></ul>
  36. 37. Duncan Lowery Funding available up to £1.25M
  37. 38. Marion Bernard Funding available up to £1.25m
  38. 39. Dr Richard Exley Funding available between £50,000- £150,000
  39. 40. Barrie Hensby Funding available between £50,000-£400,000
  40. 41. Peter Wright Funding available up to £1.25M
  41. 42. Steve Garbutt Funding available between £50,000-£150,000
  42. 43. Peter Robinson Helping companies

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