Mercia is big winner in second Midlands Engine Investment Fund

Mercia's Julian Dennard, centre, with investment success story C7 Health

Mercia Ventures is the big winner from the British Business Bank’s announcement of the fund managers for the new £400m Midlands Engine Investment Fund (MEIF II).

The regional business investment specialist has been awarded both of the equity mandates for the fund, which gives them at least £163m to deploy over the next five years.

It is a big jump from the proof-of-concept mandate it managed in the original MEIF, which launched in 2017. Mercia initially had £23.7m to manage but were allocated a further £30m for businesses across the Midlands.

Its investment into clinical services tech firm, C7 Health, was one of MEIF’s big successes. The Warwick-based business received £300,000 in 2018 – half coming from the proof-of-concept fund and half from Mercia’s own technology-focused EIS fund – and it achieved a 14x return when it was sold four years later.

Julian Dennard, fund principal at Mercia Ventures, told “What we’ve done is what they’re trying to achieve with the new funds, albeit it was on a much smaller scale.”

Under MEIF II, Dennard will lead a team that will have an initial £80m to take equity stakes in West Midlands companies. Sandy Reid, who was deputy fund principal, will now have a separate team that starts with £83m to cover the East and South East Midlands.

Dennard said: “In fund one, we tried to back companies that had big ambition, that were trying to change things on a significant scale. Not all of them work, and when they don’t work, we let them fail fast.”

The lessons learned during the first fund are expected to be important for the five-year investment period of MEIF II.

Dennard said: “We’ve been very disciplined around that stock selection. The stage we’re investing in, putting more money to work rather than less money, or building bigger syndicates.

“All of those things are what BBB [British Business Bank] wants to see, they want to see you bringing co-investment into the region. We are currently operating about 2.5:1 or 3:1 in terms of third party capital alongside our existing capital in the existing fund.

“We’re building proper syndicates around some of these ambitious businesses – and it’s done some pretty big rounds.”

An example of that is IsomAb, a University of Nottingham spin-out pioneering a new treatment for diabetics at risk of amputation. Last week it raised £7.5m in a funding round led by Broadview Ventures, and backed by the Proof of Concept fund, alongside Mercia’s EIS funds and existing investor SCVC.

For Mercia, which is based in Henley-in-Arden, the MEIF mandates represent an additional £207m of funds under management. Its subsidiary, Frontier Development Capital, has been awarded a £44m debt fund.

Dr Mark Payton, chief executive of Mercia Asset Management, added: “This is a strong vote of confidence in our investment track-record and staff, with the ability through our established regional footprint and networks to successfully deploy the capital that is needed to support exciting regional growth companies.”

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