Raising Finance

Scottish Investment Bank trims down number of funds to increase available equity financing

3 min read

20 August 2015

By streamlining its current co-investment funds from four to two, the Scottish Investment Bank (SIB) hopes to help companies across Scotland raise more finance over the next three years.

In a recent executive summary, the British Business Bank surmised that 40 per cent of new businesses close within three years of starting up. It added that traditional loans and overdrafts are often not suitable for those with the potential to succeed. 

The bank suggested that the aforementioned statistic underlined the importance of the continued diversification of financial products used by smaller businesses.

One such method is private equity. According to the British Business Bank, data collected for the Department of Business, Innovation & Skills (BIS) highlighted that equity investments in SMEs increased from £1bn in 2010 to £1.6bn in 2013 due to strong seed activity.

This trend was also visible in Scotland, with the SIB having reported that equity investment increased from £116m in 2012 to £244m in 2014 – more than doubling over the two year period.

Kerry Sharp, head of the SIB, claimed that it showed evidence of the increasing demand for equity finance, as well as the SIB’s role in facilitating access to finance for Scotland’s growing companies.

However, she suggested that it was clear that companies increasingly needed more funding to become both flexible and potential global enterprises.

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To “make things cleaner and more simpler for investors to support companies with growth ambitions”, the SIB has decided to focus on two enhanced funds, with simplified criteria, she said.

The two funds, named the Scottish Co-Investment Fund (SCF) and the Scottish Venture Fund (SVF), have also increased the available deal parameters. The SCF will now invest between £10,000 to £1.5m, while the SVF will invest up to £2m in deal sizes of up to £10m.

The difference in funds is that the SCF would be led by private sector investors, with investment made alongside accredited partners who are vetted by the SIB. 

The SVF on the other hand, would not require an accredited partner but would still be led by private investors. This approach, the SIB claimed, makes the SVF more accessible to a wider range of private sector investors – thus “unlocking more risk capital funding for businesses”. 

Both funds, Sharp noted, will be available to all businesses across Scotland. 

Below, Sharp further explains the new changes awaiting the SIB: