North East to benefit from fund

Feb 24 2010 By Peter McCusker, The Journal

The first company to benefit from the new £125m fund to support North East businesses is expected to be named within weeks. Peter McCusker takes a look at how the fund works and who will benefit.

LONDON-based venture capitalists IP Group hopes that over the next five years it will be able to help a North East company emulate the regional success of software giant Sage.

The IP Group is one of six fund managers selected to manage equity investments from the JEREMIE fund – now known as Finance for Business North East – designed to help North East businesses grow.

IP’s chief operating officer Magnus Goodlad said: "The North East has two excellent research-based universities in Newcastle University and Durham University which already provided a good deal flow for technology businesses.

"The region has produced some excellent technology-based businesses over recent years, such as Sage and IDS, and we will be looking for investments which can emulate that."

IP is one of six companies which has been chosen to manage the six funds which will invest the Finance for Business North East’s riches.

It is estimated that almost 850 SMEs could benefit over the next five years, creating or supporting 5,000 jobs. It is the only fund of its kind in England.

The funds are earmarked for businesses in different sectors or at different stages of development, although there is some overlap to encourage competition between the fund managers.

The £125m for the Finance for Business North East is made up from the European Investment Bank, £62.5m, the European Regional Development Fund 2007-2013 £44.25m and £18.25m from regional development agency One North East.

It opened for investment in January and so far hundreds of businesses have enquired about access to the funds with details on the first investment due within the next few weeks.

At the end of the funds’ profits from the investments will be recycled into a legacy fund to support future investments. Its arrival in the region has been welcomed by the North East corporate finance community.

Chris McCourt, corporate finance manager at BTG McInnes Corporate Finance in Newcastle. said: "The launch of the Finance for Business North East funds is great news for the regional economy, and the continued availability of equity and mezzanine investment in the North East will go some way to bridging the equity gap faced by many SMEs in the region.

"The structure of the individual funds has been determined with a deliberate overlap in investment objectives. This is aimed at stimulating competition between the individual funds, and indeed other potential funders, with the hope that this can deliver the best deals for SMEs.

"The funds are a great opportunity for SMEs based in the North East, and the legacy funds they are designed to generate should provide help to SMEs in the region well beyond the five-year investment life of these particular funds.

"The increased exposure to venture capital-type deals in the region will strengthen the experience of the SME community, which may in itself in time lead to some of the larger private equity houses taking a more active interest in North East companies."

Newcastle-based NEL Fund Managers believe its Growth Fund will help create over 1,500 new jobs in the region by the end of 2014, as well as helping to safeguard a further 1,300 jobs.

NEL says it plans making is aiming to make investments of between £50,000 and £400,000 in at least 130 established companies based anywhere in the North East which are at a development and growth stage.

Chief executive Barrie Hensby says: "The Growth Fund provides a fantastic opportunity for ambitious regional businesses to access the development capital they need to develop their services, expand their operations and create new, sustainable employment opportunities.

"The availability of investment capital is always crucial to both the short and long-term health of the regional economy, but it is especially so in the present difficult climate, and we are very keen to hear from established companies with strong management teams and robust business plans that we can help to develop and succeed."

Meanwhile the IP Group is in the process of opening its office in Newcastle having recruited two well-known figures in the North East business world Duncan Lowery and Nick Edgar, who both formerly worked for NEL.

Alan Aubrey, chief executive officer of IP Group, added: "We are in the process of establishing an office and team in Newcastle and look forward to working to deploy the fund in the region which we believe has exceptional investment potential."

:: Companies interested in accessing fund finance can register their details now at www.onenortheast.co.uk/financeforbusinessnortheast and they will be contacted by a fund manager or go to www.northeastfinance.org