Northern Enterprise Ltd was the pioneer in access to finance when in 1993 it became regulated for the conduct of investment business and became the discretionary fund manager for the Midland Enterprise Fund for the North East, subsequently named the First HSBC Enterprise Fund (HSBC 1).
Following on from HSBC 1, NEL secured management of the follow-on fund in 1998, the Second HSBC UK Enterprise Fund for the North East (HSBC 2). The investors in that fund included HSBC UK plc, European Investment Bank and local pension funds.
Looking back it was absolutely clear in 1999 that if as a region, the North East wished to make real progress, urgent action was necessary to establish more accessible equity and loan finance to Small to Medium Sized Enterprises (SMEs) in, particularly those in technology based ventures and with growth potential.
This became increasingly necessary in the period following the “dot-com bubble” between 1998–2001 when investors were nervous and finance was extremely scarce, the circumstances of which in comparison to the current crisis seems comparatively mild; though it did not feel so then, witnessing 3i closing its Newcastle Office in 2002.
It is now almost a decade since One North East and its regional partners recognised the vital importance of opening up access to a much broader base of finance within the North East; available to a full spectrum of small to medium size businesses (SMEs ) and also to talented individuals, including those linked to the region's universities and colleges.
The aim of the then new “Access to Finance” policy was not to compete with but to complement the finance offered by the existing Banking and Financial Services and Regional Loan and Equity Funds. The principal objective was, and continues to be, to address the gaps in Access to Finance inhibiting the creation, growth and sustainability of SMEs in the North East of England.
Even in the earlier part of this decade, RDA funding nationally, was scarce, but in the North East as in certain other regions, the opportunity existed to access the European Regional Development Fund. This continues to be the key to unlocking a range of exciting possibilities in Access to Finance, now 10 years on through JEREMIE. This is examined more later.
In 2000, the region moved forward. Firstly there was the North East Regional Investment Fund 1 (NERIF1) in 1999/2000 with a fund of £6.675m then NERIF 2 of £2.5m and then Funds 3 & 4 with investments by way of convertible loans and mezzanine finance of between £15,000 and £250,000. This Fund was supported with capital from Northern Rock.
In the same year, the North East Seed Capital Fund was created. It was a fund of £3.2m for the commercialisation of technology from the five universities in the North East. In this case the investors were Northern Rock, 3i, the European Investment Bank and the universities themselves.
In 2001, NEIF2 was created as a follow on fund of £2.5m with the same investment criteria as NEIF. The capital was provided by Barclays Bank plc.
The range of Funds was augmented with the creation of a Community Loan Fund and the Spirit of Enterprise Loan Fund to support 'not for profit' organisations and entrepreneurs with disabilities respectively, with smaller but nevertheless essential and productive investments.
We also saw the creation of a Micro Loan Fund for start-ups and expansion in this case for ventures that required only small or syndicated funding of up to £15,000. This filled a niche gap that other funds had difficulty satisfying.
The North East followed this in 2003 with a Regional Venture Capital Fund, Capital North East. The region was one of the first with two funds being launched which provided £15m of equity finance for high growth SMEs. This fund was directed at businesses having difficulty in raising finance in a combination.
2004 saw further major steps in access to finance in the region; Northern Enterprise Limited launched the North East Investment Fund 3, an £18m mezzanine debt finance fund managed by its newly created specialist debt division, Evolve Finance. The majority of capital was helpfully provided by Barclays Bank plc.
Things moved on hugely during 2004 with the region, through NStar (now rebranded as North East Finance), winning £33m in ERDF funding to launch a much needed £10m Proof of Concept Fund managed by NorthStar Equity Investors to assist SMEs and Spin outs from the research base focusing on technology ideas with loans of between £10,000 and £60,000.
The other new fund was the North East Co-investment Fund (CoIF) also managed by NorthStar Equity Investors was aimed to help SMEs undertaking technology based investments. The size of investments from the CoIF, in the form of ordinary or redeemable preference shares is in the range of £100,000 and £1m.
Throughout much of this period other funds such as Bridges Community Ventures were offering equity investments of £100,000 to £2m, restricted to deprived wards. Northern Venture Managers were also offering equity based investments of between £500,000 to £5m for all types of businesses.
Other funds include the North East Business Angels, Coalfield Enterprise Fund, UK Steel Enterprise and Project North East , all doing excellent work in addressing the range and availability of finance to North East businesses.
In 2006 Northern Enterprise Limited raised the £5m Growth Fund, with support from NITR, Barclays Bank plc and others.
Various specific funds were created in this period including the North East Equity Match Fund providing £2.5m of equity funding in investments of £100,000, the Design and Creative Fund Pilot of £2.4m of equity and quasi equity of up to £200,000 and the Three Pillars pilot Fund of £2.4m, again by way of equity and quasi equity investment.
Around that time, the North East Investment Fund 3B was also launched which extended the capability of Evolve Finance to the end of 2008. Barclays Bank plc was again a substantial provider.
It was in mid 2008 that the prospect of a strong bid for Joint European Resources for Micro to Medium Enterprises (JEREMIE) funding gained momentum. This came at a time when the opportunity for new Funds seemed very limited not least because of the unprecedented squeeze in Capital markets as a result of “the Credit Crunch”.
We are now moving into sunnier uplands with the JEREMIE funds of circa £125m which have now been branded the Finance for Business North East funds.
The funds are approved and the Fund Managers appointed.
Neil Mundy
January 2010
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