Member Article

Inside growth capital with Business Growth Fund

Growth capital is one of the unsung avenues of investment that businesses can benefit from. Bdaily recently talked to Andy Gregory, the Business Growth Fund’s Northern regional director, to find out how it works.

Andy’s background is in corporate finance advice, banking and private equity. After working as financial director of a successful private equity backed company, he joined the BGF in September 2011 to set up the Northern arm of the fund.

He built up a team of six investors to cover the “patch” and his role now revolves around making investments, managing the team and fulfilling board duties for two of the fund’s investments.

BGF investments are intended to accelerate growth, and are major step change for companies as opposed to short term injections.

Andy explains: “Our offering is growth capital for SMEs. There’s plenty of equity funds that invest between £2m and £10m, which is our range, but there are very few actually making long term flexible growth capital investments.

“We’re pretty confident that there’s a lot of demand for capital, given the economic climate and and the restrictions on bank lending. It’s been really encouraging to see the quality of companies and teams looking for growth capital, and we’re sure that we’re growing the market for companies to take capital that wouldn’t necessarily have taken it from anywhere other source.

“The vast majority of deals we are doing, wouldn’t have been done otherwise.”

So why do BGF see such traction? Andy suggests that it is do with the long-term nature of the investments.

“There’s less of the short term exit requirements that can deter entrepreneurs. Also, we only ever take minority stakes. We work very much as a junior partner. We’re not coming in and buying businesses and controlling them,” he says.

“We allow entrepreneurs to absolutely retain control of the businesses we invest in. Many just can’t get comfortable with the potential loss of control that might come with other investments.”

The network of BGF contacts and employees is also a major selling point. Businesses can draw on this resource pool, including HR, IT and marketing.

Andy continues: “A lot of our businesses, particularly at the smaller end of the scale, are looking for more than just capital.

“They want to be supported in these uncertain times, and as a minority investor, we’re not imposing this on the businesses but offering it.”

The BGF remit is wide. They can invest in any business, from those just about to break into profit, right up to those with a £100m turnover.

“Obviously the economics have to work, but because we’re investing for the long term we’re very much backing a management team and we have to believe we’re entering into a partnership with that team.

“Of course there’s some businesses that are outside of our mandate; we can’t agree on pricing; or it might be the wrong time for them. But, we’re always interested to meet companies, as while there might not be a critical short term need, things can change.

“At the moment for instance we’re talking to businesses we met over a year ago, and now the time is right. It can be a long lead time, but often plans for acquisitions and growth can come along, and businesses need to know where they can go.”

And where’s the investment going in these companies? As the BGF operates across a broad spectrum of sectors, this can really vary.

Andy explains that technology companies are increasingly looking to grow overseas, and investment in these firms is increasingly used to make overseas acquisitions or establish foreign bases.

The immediate future for BGF involves growth of investments, and much of the same success that came last year.

Andy adds: “This year we’re going to raising awareness of the BGF and why we different to traditional private equity. We’re looking to build on the team and hopefully make around seven or eight investments this year across the patch.”

This was posted in Bdaily's Members' News section by Tom Keighley .