£400m fund launches to back Midlands ambitious businesses

The Midlands Engine Investment Fund (MEIF) is today launching its second fund, with £400m being made available to support business growth over the next five years.

The money follows on from a £300m fund that launched in 2017 and is credited with supporting the creation of 4,300 jobs in the region and bringing along an additional £400m of private sector investment.

“We’re excited about this, it is a significant amount of money,” Louis Taylor, chief executive of the British Business Bank (BBB), told TheBusinessDesk.com. “We see good opportunity, it’s about building on success. None of this is a magic wand that has instant impact but we’ve got to stick with this.”

MEIF II is one of six regional funds being rolled out, and follows announcements for the devolved administrations of Scotland, Wales and Northern Ireland, as well as the South West. The second Northern Powerhouse Investment Fund is scheduled to launch in three weeks’ time.

The new funds are designed to boost the supply and diversity of early-stage finance by providing options to firms that might otherwise be unable to secure investment. The finance is “to help small and medium-sized businesses start up, scale up, or stay ahead”.

Taylor acknowledged the Government-owned bank had “learned quite a lot of lessons” from the first funds. It plans to retain greater flexibility in how it allocates the funds, and has kept back 30% – £119m – to support the work of the fund managers which are successfully deploying cash.

“We learned that allocating too much of the fund too early creates a rigidity that isn’t helpful over a five year investment period”, he said. “It is committed – it will go into the region – but we will allocate it once we see how the uptake is.”

Initially £281m has been allocated to five fund managers. Mercia, which received an initial allocation of £23m last time, is ultimately responsible for more than £200m.

Mercia Ventures will have £163m for equity deals across the Midlands, and can deploy up to £5m per deal.

Frontier Development Capital, which was acquired by Mercia in December 2022, has £44m to loan to West Midlands businesses with an individual limit of £2m, while Maven Capital Partners will manage £46m for the East and South East Midlands.

BCRS Business Loans and First Enterprise – Enterprise Loans will continue to manage the small business loans, and will each have £14m to deploy in loans up to £100,000.

The fund managers to miss out on the second fund are Midven and Foresight Group, which had managed the equity finance funds, and FSE Group, which ran a debt fund.

BBB is hopeful that MEIF II will get off to a faster start than its predecessor, helped by some of the existing fund managers carrying on and having a live pipeline.

Taylor said: “The idea is that this new fund carries on almost seamlessly from where the old one leaves off. There is some momentum behind the existing funds and that will transfer over into the new funds.”

The first MEIF was announced by George Osborne in his March 2016 Budget, months before the Brexit referendum. It was eventually launched by his replacement Chancellor Sajid Javid 17 months later after a difficult process that hampered the roll-out of the funds.

Eventually, and despite Covid funding support disrupting the business finance landscape, £300m was given to 739 businesses.

“That was £300m, this is £400m so we’re hoping to be able to have a significantly bigger impact,” said Taylor. “Don’t forget that we’re also trying to crowd private money in alongside the money that we’re putting up.”

The first fund attracted almost £400m of private sector money alongside MEIF.

“It’s a much much bigger impact than just the size of the fund,” said Taylor. “We’re not trying to be the only player here, we’re trying to be catalytic to the private sector players, get them interested in the sector, lending and investing in the sector, such that actually in time government can stand back.

“So we’re not only trying to help the companies that the money from these funds are getting into, we’re also trying to establish an investor community more strongly across the Midlands by demonstrating that good returns and good opportunities are available.”

Taylor looked ahead to the end of the fund’s investment phase in 2029 and the impact MEIF II could have on businesses and the wider investment ecosystem.

He said: “Firstly, the money will have been allocated to a large number of businesses across the whole region at various different stages of their development. That it will have generated several thousand jobs, that it will also have demonstrated to the fund management community around the UK that there is money to be made through investing in local companies by being locally present.

“Hopefully, there will be more investors sitting in Birmingham and Coventry and other parts of the Midlands who are willing to put money to work in developing small businesses. I think it also might look like a little bit of a cultural change in driving a bit more risk appetite amongst entrepreneurs and investors.

“That, I think, is what success would look like in five years’ time.”

Read more: Mercia is big winner in second Midlands Engine Investment Fund