Regional venture fund managers wave flags as bids go in for Powerhouse Fund 2

Venture capital fund managers and specialist debt partners are mounting a charm offensive now that bids have been submitted to run the next phase of the £660m Northern Powerhouse Investment Fund (NPIF).

Mercia Asset Management has cranked up the publicity drive and boasted it has invested £8.7m in the North West in the first half of 2023 and is “open for business”.

FW Capital, part of the Development Bank of Wales, which is  has delivered the loans and investment through NPIF-FW Capital Debt Finance and boasts £275m of funding to businesses across the North of England, backing over 730 businesses, since the launch of all of its funds in 2010.

Both are expected to have submitted detailed proposals to the government’s British Business Bank, which administers NPIF, one of a series of new Nations and Regions Investment Funds which will offer a range of commercial finance options with loans from £25,000 to £2 million and equity investment up to £5 million, across the North. 

Of the £660m allocated to NPIFII, designed to target imbalances in access to finance across the North, just over 57% will go to equity and just under 43% to debt with £224m initially retained as an Investor Reserve.

TheBusinessDesk.com understands that Praetura Ventures has submitted a bid.

The Manchester-based venture capital investor has raised £10m to invest in a northern business Venture Capital Trust and float the business on the stock market, which could well bolster its credentials.

However Foresight has ruled itself out.

The investment firm, which runs a Regional Investment LP that makes equity investments of £1m-£5m in the North West of England, North Wales and South Yorkshire, will not be taking part in the NPIF2 process.

Ken Cooper, Managing Director, Venture Solutions, at the British Business Bank, said the second fund would build on the success of its predecessor and increase the supply and diversity of early-stage finance for smaller businesses in the region. 

“The first Northern Powerhouse Investment Fund has facilitated the investment of more than £1 billion into northern businesses since it launched, and has been instrumental in the creation of thousands of new jobs and opportunities. We know that the levels of private debt lending and equity investment in the North of England remain below expectations given the region’s share of the UK’s smaller business population and that is something this next generation of the fund will continue to address by backing ambitious businesses that will drive sustainable economic growth.”

Of the likely bidders, Mercia manages a range of third-party funds including parts of the Northern Powerhouse Investment Fund (NPIF), as well as raising its own EIS and VCT funds, and invests directly in some businesses from its own balance sheet. 

Its nationwide network of 11 offices invested £94.6m in total in the first half, up from £76.7m in the first half last year. 

Of the total, 85% went to firms outside of London, in line with its mission to address the funding gap in the regions and connect businesses with excellent prospects with the right funding and support at the right time.

Will Clark of Mercia

Will Clark, Managing Director of Mercia Ventures, said:  “We are very much open for business and the quality of regional SMEs seeking investment has supported this strong half-year result. We have increased both the value and volume of investments during the first half of 2023 and this has been achieved against the backdrop of a difficult economy.

“We believe the regions hold great opportunities if you know where to look. With a nationwide network of offices and local investors, we are very much embedded in these areas and have a track record of identifying rising stars and supporting them to scale and grow, while achieving returns for investors.

“Mercia remains open for business and has money to invest. Looking ahead we will continue to focus on diversity and inclusion and explore ways to engage with communities that have yet to fully connect to capital providers. We look forward to creating more success stories in the second half of 2023 and beyond.”

FW Capital’s loans co-invest alongside £350m from the private sector and spans manufacturing, construction and technology.

Gary Guest, Fund Director at FW Capital, signalled his fund would be looking to continue to work with the Northern Powerhouse Investment Fund in a general statement. 

“We’re here to help businesses that show real potential, providing valuable support and funding. External investment can help to strengthen a business and in the North West our funding continues to play an important role in helping ambitious businesses to expand,” he said. 

Gary Guest, FW Capital

Guest pointed to the £275m milestone investment as evidence the investment has fuelled significant business growth and the jobs created is supporting local communities and having a positive impact on the local economy.

“I’d encourage businesses to talk to us about how we can help them,” he said. 

In the North FW Capital has four funds under management and a further two delivered funds. This includes NPIF – FW Capital Debt Finance, the Tees Valley Catalyst Fund, the North East Property Fund and the North East Commercial Property Investment Fund.

The Northern Powerhouse Investment Fund project is supported financially by the European Union using funding from the European Regional Development Fund (ERDF) as part of the European Structural and Investment Funds Growth Programme 2014-2020 and the European Investment Bank.

The Northern Powerhouse Investment Fund II will operate across three tiers: smaller loans (£25K-£100K), debt (£100K-£2 million) and equity (up to £5 million).

The British Business Bank expects to appoint fund managers and launch the fund in early 2024.