In April the Chancellor announced the Capital for Enterprise Fund (‘CFE’) for businesses that the banks weren’t supporting – but the wheels of government turn slowly and it has taken until now to finalise the terms and make the cash available. The fund is to be invested/managed jointly by Maven Capital Partners and Octopus Private Equity
This could be a good source of finance for businesses finding it difficult to raise debt in today’s market. Qualifying businesses are likely to be profitable, have a good management team, a sound business plan for growth, and meet the EU definition of an SME e.g. revenues below €50M.
CFE will provide equity and/or mezzanine (high yielding debt) finance at a cost below that of traditional venture capital or private equity. Mezzanine finance could allow funding without having to give away a shareholding in the business. But you need to move quickly as CFE has a short timescale and is to be available only until April 2010.
What does all this really mean. Well the money will go do decent businesses which have already achieved some scale - in practice £500k EBIT and upwards. It also means, I suspect, is that this equity or quasi equity money will be available SLIGHTLY more cheaply than otherwise, and in SLIGHTLY smaller lumps.
The possibility of getting some as of as mezzanine finance is quite unusual at the level of the market - and for the right deal very helpful. So for example some deals might be structured using high yielding debt with a bullet repayment after a number of years - useful for investing in a project which will generate the cash flows to repay later.
For once the government is - by accident or design - targeting this support at good businesses who can do something purposeful with the money.