News

18th October 2021

Why equity finance is key to accelerating SME success in the North

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Northern Powerhouse Investment Fund

Sean Hutchinson, senior investment manager at British Business Bank and the Northern Powerhouse Investment Fund , discusses the equity finance landscape in North, and how it is an increasingly viable route for businesses looking to grow.

The last 18 months has demonstrated just how critical investment is when it comes to the success of small businesses. Access to the right type of finance and networks forms an increasingly important part of the growth journey and, in some cases, recovery of businesses around the UK.

Every business is on its own unique trajectory and therefore finance packages must be tailored to what the individual requirements are at that given time. For many, debt funding is the most viable option. In fact, of the 928 businesses receiving funding from the Northern Powerhouse Investment Fund (NPIF) to date, more than half have received debt finance (£100k – £750k) totalling £158m, while a third have received Microfinance (£25k – £100k) totalling £19m.

However, Debt finance is not suitable for all, particularly early-stage high growth businesses without the cash flows to service the quantum of debt needed to scale the business. Our equity funds can invest up to £2m into businesses, and of the £288m invested and lent by NPIF so far, £112m has been invested as equity investments into such businesses as these. It is particularly attractive to management teams in fast scaling companies looking for much more than just a financial investment. An equity investment is a partnership; it means access to an extended pool of resource, experience and contacts which can accelerate growth for the business at hand.

Through the Northern Powerhouse Investment Fund, we have regularly seen the transformational impact that equity finance can have.  Bubo.AI – a Middlesbrough-based software company that uses artificial intelligence to optimise pricing for businesses – secured £250,000 funding from NPIF-Mercia Equity Finance, which has led them to win a string of awards and elevate themselves quickly onto a worldwide presence.

Further to the west, we have seen a £600,000 NPIF-Maven Equity Finance investment into water treatment technology business G20 Water Technologies (G20). With £320,000 of the funding coming from NPIF, G20 has expanded into a new laboratory in Liverpool’s Sci-Tech Daresbury, while adding four new highly paid skilled jobs in the last quarter alone.

Another example is Sheffield-based Mindtech, a start-up with a platform that trains robots to recognise images, received a £2.3m funding package led by NPIF – Mercia Equity Finance. The funding will allow the company to build its team and client base to take the business to the next level in the coming years.

Since its launch, the £500m Northern Powerhouse Investment Fund has attracted an additional £344m in private sector co-investment. Our equity funds are a big contributor to this total as the portfolios go on to raise additional funding rounds attracting private sector investors who can see further investment potential .

The success of these companies highlights the diversity of the economic activity in the North. With greater access to finance available, companies can continue to grow and put their respective regions on a national and global stage. While there is still some way to go to attract more equity finance to the North NPIF continues to lead the way by ensuring its fund managers and wider partner network continue to provide businesses with the crucial financial backing required to recover and grow.

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.