Description
The British Business Bank is already making a real diff erence, with over 30,000 smaller businesses benefi tting from its programmes.
STRATEGIC
PLAN
JUNE 2014
PERFORMANCE
HIGHLIGHTS
£782 m
of new lending and investment
was generated by British
Business Bank programmes in
fnancial year 2013/14 – more
than double the level supported
in 2012/13.
1.56 bn
of total lending and
investment in the
market, supporting UK
businesses.
61%
of this was supported
through new, emerging or
smaller fnance providers;
in total we work with more
than 80 partners.
+30,000
businesses
were beneftting from fnance
through our programmes as of
31st March 2014.
East Midlands 7%
East of England 9%
London 19%
North East 4%
North West 14%
Northern Ireland 1%
Scotland 6%
South East 13%
South West 8%
Wales 5%
West Midlands 7%
Yorkshire & Humber 7%
We operate across the UK
Wholesale and Retail Trade
Accommodation and
Food Service
Manufacturing
Construction
Science and Technology
Other
21%
11%
10%
10%
10%
38%
2 | British Business Bank Strategic Plan
The British Business Bank is focused on unlocking fnance
for smaller businesses: the average size of loans through
our programmes is £68,000 and the typical equity
investment is £600,000.
We operate across all sectors,
but the top five supported are:
TABLE OF
CONTENTS
40 43 44
Assessing our
performance
Risk
Management
Financial
Summary
02 04 05
Performance
highlights
Foreword by the
Secretary of State
for Business,
Innovation and Skills
Chairman’s
statement
10 12 19
The story
so far
Who
we are
Why we
are needed
26 27 39
Market
Segmentation Our Programmes
Wider activity
to improve
the market
06 07 08 What we do
How we
operate Our Values
22 24 25
Our
objectives
How we
are run
How we
allocate our
resources
British Business Bank Strategic Plan | 3
4 | British Business Bank Brochure
I
am very pleased to see how far the es-
tablishment of the British Business Bank
has progressed. The need for an institu-
tion to ensure that markets for long term
business fnance work well was identifed
by John Maynard Keynes in the 1930s. For
many years, ICFC and later 3i, performed
this role. But for many decades, the UK has
lacked such an important body to support
medium scale and smaller companies.
When I announced my intention to
create the British Business Bank, I outlined
that Government would be building for the
long-term. After all, this is a key initiative
in our Industrial Strategy. We cannot fx
business fnance markets overnight - the
legacy of the banking crisis and the many
years preceding it have left us with a market
which is deeply fawed.
Lending to smaller businesses is still
too concentrated, and lenders have been
incentivised to cross-sell products rather than
support companies in their local communities.
Thankfully things are changing. The British
Business Bank is already playing a signifcant
role in accelerating this change. This plan
shows how the British Business Bank is
looking to the future, with clear, measurable
objectives and solutions to address the issues
afecting smaller businesses.
The British Business Bank is already
making a real diference, with over 30,000
smaller businesses beneftting from its
programmes. And there are exciting plans for
further action to boost long-term fnance and
encourage diversity of supply.
I have faith that the Board and executive of
the British Business Bank have the ambition,
ability and resources to make a real diference
to long-term economic growth in the UK.
Vince Cable
Secretary of State
Department for Business Innovation
and Skills
FOREWORD
BY THE SECRETARY OF
STATE FOR BUSINESS
INNOVATION AND SKILLS
4 | British Business Bank Strategic Plan
The British Business
Bank is already making
a real diference, with
over 30,000 smaller
businesses beneftting
from its programmes”
British Business Bank Strategic Plan | 5
H
elping smaller businesses access the
fnance they need to grow is vital to
our continuing economic recovery
and sustainable growth thereafter.
For too long, smaller businesses in the UK
have found their options constrained when
seeking funding, due to overly concentrated,
inef cient fnance markets.
That’s why the Government is setting up
the British Business Bank: to make fnance
markets for smaller businesses work better,
enabling the sector to prosper, grow and
build economic activity.
The setting up of the British Business
Bank has made major progress in the last
year. We’ve built a strong management
team, incorporating expertise from the
private and public sectors, and have
appointed a full Board of Directors to
advise and oversee the Bank’s activities
going forward. Our programmes are already
delivering signifcant results – a total of
£782 million reached smaller businesses
in the last fscal year alone. We’re also
playing an important role in widening
the fnance options available to small
companies by funding innovative providers
of fnance, such as peer-to-peer lenders,
and will shortly start to guarantee some
of the lending of smaller challenger banks.
Currently we are working with over 80
diferent suppliers of fnance.
But there’s still much more to do. This
strategic plan lays out our vision for the
Bank: setting out the market failures we are
targeting and the critical groups of smaller
businesses we are aiming to support,
explaining the Bank’s objectives, structure
and values, and the standards we will
assess our performance against.
We are fully focussed in making this new
organisation a success, and I am confdent
that we will play a critical role in improving
the fnancing options available to small
businesses in the UK, helping to make a real
diference to their success and growth in
the wider economy.
Ron Emerson
Chairman
British Business Bank
CHAIRMAN’S
STATEMENT
Our programmes are already
delivering signifcant results –
a total of £782 million reached
smaller businesses in the last
fscal year alone”
6 | British Business Bank Brochure
WHAT
WE
DO
l Our goal is to change the structure of fnance markets for smaller
businesses, so these markets work more efectively and dynamically.
This will help businesses prosper and build economic activity in the UK.
l That’s why
• We will increase the supply of fnance available to smaller businesses
where markets don’t work well.
• We will create a more diverse and vibrant fnance market for smaller
businesses, with a greater choice of options and providers.
• We will build confdence in the market by increasing smaller
businesses’ understanding of the options available to them.
• We will achieve this whilst managing taxpayer resources efciently
and within a robust risk management framework.
l The British Business Bank brings expertise and Government money to
the smaller business fnance markets.
l Understanding markets and smaller businesses’ fnance needs allows
us to design programmes to make fnance markets work better.
l Investing alongside private sector investors maximises our impact and
allows us to reach the full range of fnance providers such as banks,
leasing companies, venture capital funds and web-based platforms.
l We do not lend to or invest directly in smaller businesses, with the
exception of the Aspire Fund.
l In addition to fnance, we also use guarantees to share risk with the
private sector and so create stronger incentives for lenders to extend
credit to smaller or growing companies.
l Our route to market is through established or newly emerging fnance
market providers. In total we work through more than 80 fnance
partners in the market.
l We will unlock up to £10 billion of new fnance and bring greater
choice and information on fnance options to smaller businesses.
l Our programmes are designed to bring benefts to smaller businesses
that are start-ups, high growth, or simply viable but underfunded.
l We are creating the opportunity for smaller businesses to invest and
grow, creating additional jobs and economic activity.
6 | British Business Bank Strategic Plan
The British Business Bank programme is
currently run directly by the Department
for Business, Innovation and Skills and
is not authorised or regulated by the
Financial Conduct Authority. Once HM
Government has received European
Commission State aid clearance, which is
expected later in 2014, programmes will
be transferred to the British Business Bank
plc, which will operate as a Government-
owned fnancial institution. Any references
to the British Business Bank in this
document refer to the British Business
Bank programme within the Department
for Business, Innovation and Skills.
HOW WE OPERATE
British Business Bank Strategic Plan | 7
Private
Sector
Money
Private
Sector
Money
Resulting in increased business
investment, growth and jobs
Working with fnance market providers
Banks
Venture
Capital
funds
Asset
Finance
providers
Business
Angels
Start-up
funding
providers
Peer-
to-peer
lenders
Supply-
chain fnance
providers
Trade
credit
providers
Debt
funds
More Finance
up to £10bn
Greater Choice
of product and
provider
Better Info
about fnance
options
Start-ups/
early-stage
businesses
Growing
businesses
Other underfunded,
viable businesses
Expertise
Designing solutions to make
fnance markets for smaller
businesses work better
Money
Over £3bn of public
funding commitments
8 | British Business Bank Strategic Plan
OUR VALUES
We have been created to enable change in the market.
Our key values are:
INTEGRITY
CONNECTING
COMMERCIALLY
MINDED
Acting with a shared sense of purpose, an abiding duty of
care, and serving our market, stakeholders and employees
with fairness, honesty and transparency.
Collaborating across the organisation, engaging
with stakeholders, Government, and markets to better
understand the challenges faced by smaller businesses.
ENABL ING
British Business Bank Strategic Plan | 9
IMPROVING
DELIVERING
COMMERCIALLY
MINDED
Exercising good commercial judgement to
meet the needs of our market while also staying
focused on the need to drive economic beneft.
Commitment to delivering a professional, quality
service to all our stakeholders and colleagues,
whilst employing taxpayer resources responsibly
to provide solutions.
Challenging and innovating to create efective solutions that
meet the objectives of our stakeholders and ensuring that
fnance markets for smaller businesses work efectively.
ENABL ING
10 | British Business Bank Strategic Plan
SET UP OF THE BRITISH
BUSINESS BANK
HIGHLIGHTS
September 2012
Vince Cable announces
intention to create
the British Business
Bank, with £1bn of
Government funding
2012 2013
October 2013
Ron Emerson
appointed Chair
April 2013
£300m
Investment
Programme launched
March 2013
VC Catalyst Fund
announced at
Budget 2013
January 2013
£15m
committed to Amadeus
IV Early Stage Fund
March 2013
First Strategy
Update published
April 2013
Enterprise Finance
Guarantee Trade
Credit Pilot launched
July 2013
Angel Co-Fund
extended across UK
July 2013
£7.8m
committed to
Dawn Capital II
October 2013
£25m
commited to Episode I
November 2013
£30m
commited to Praesidian
Capital Europe and
£15m
to BMS Finance
British Business Bank Strategic Plan | 11
SET UP OF THE BRITISH
BUSINESS BANK
HIGHLIGHTS
February 2014
Start Up Loans
programme is made
available across the UK
February 2014
£40m
commited to
Funding Circle
April 2014
£20m
commited to Sussex
Place Ventures
June 2014
Full Board appointed
31 March 2014
£782m
of fnance facilitated by
British Business Bank
reaches smaller businesses
March 2014
Wholesales Guarantees
programme launched
April 2014
Our main programme for
Venture Capital reformed
and made more fexible
2014
December 2013
Keith Morgan
appointed CEO
December 2013
Treasury announces
£250m
of additional funding for
new programmes
12 | British Business Bank Strategic Plan
WHO
WE ARE
THE BOARD
Ron Emerson
Non-Executive Chair
Ron has held a number of senior
management positions with Bank of
America, Nomura Bank International and
Standard Chartered Bank, where he was
a member of the group management
committee and Group Head of Corporate
Banking. Since 1996 he has divided his
time between non-executive directorships,
business advisory work and as an active
member of the Faculty of Management
Studies at Oxford University, where he is an
Associate Fellow.
Christina McComb
Senior Independent Director
Christina has held a range of senior private
and public sector roles and has a successful
track record in private equity and venture
capital investment as well as advising small
and medium-sized businesses. Christina is
a former director of 3i plc and is currently a
Senior Independent Director at Standard Life
European Private Equity Trust and a non-
executive director of several other investment
companies and private companies.
A full Board of non-executive
Directors has been appointed
to advise the creation of British
Business Bank and will be the
permanent Board once the
Bank becomes an operationally
independent organisation.
12 | British Business Bank Strategic Plan
Jonathan Britton
Non-Executive Director –
Audit Committee Chair
Jonathan has 35 years of experience in
banking, spanning corporate, smaller
businesses and investment banking
businesses. Jonathan is currently a Non-
Executive Director of ICICI Bank UK Limited,
and also chairs its Audit Committee. Since
2006, he has also been a Director of Sparks,
a leading children’s medical research charity,
becoming Chairman in 2012.
British Business Bank Strategic Plan | 13
Keith Morgan
CEO
Keith has been leading the planning and
establishment of the British Business Bank
since January 2013. Prior to this, Keith was
formerly a Director and Head of wholly-owned
investments at UKFI, joining in 2009 to
manage the UK Government’s shareholdings
in Bradford & Bingley, Northern Rock and
Northern Rock Asset Management.
Keith joined UKFI from Banco Santander
where he was a Director of Sovereign Bancorp
in the US, focusing on Bank’s retail and SME
strategy and the integration of Sovereign
into Santander. He was previously Director of
Strategy & Planning at Abbey National and
a member of the Executive Committee, and
also served as Chairman of Santander’s Asset
Management and Credit Card businesses in
the UK. Before joining Abbey in 2004, Keith
spent 18 years at L.E.K. Consulting, where he
was a partner specialising in fnancial services.
Colin Glass
Non-Executive Director
Colin is a Chartered Accountant with his
own Practice, Winburn Glass Norfolk (‘WGN’)
which he founded, with two partners, in
1975. He is also a non-executive director of
several companies, all of which are quoted
on AIM. Colin has always been passionately
interested in assisting small businesses
develop to their full potential, and has
been involved in a signifcant number of
diverse businesses. Colin was awarded
the Star in Practice Award in 2006 from
the West Yorkshire Society of Chartered
Accountants, and also was awarded
Business Advisor of the Year in 2007 and
Non-Executive Director of the year in 2008
by the Institute of Directors Yorkshire and
Humber. In January 2011 he was awarded
Non-Executive Director of the Year in the
Grant Thornton sponsored Quoted Company
Awards for his work with AIM-quoted
smaller businesses.
14 | British Business Bank Brochure
Caroline Green
Non-Executive Director
Caroline is Finance Director of the VC-backed
engineering group Arc Specialist Engineering
Limited and previously spent eight years in
private equity, initially at 3i plc. She started
her career at Xerox Corp where she spent
nine years in a variety of roles including
supply chain, manufacturing and fnance.
Caroline is also a non-executive director and
chair of audit committee for Protection Group
International Limited, a fast growth risk
mitigation and security company.
Teresa Graham
Non-Executive Director
Having worked alongside smaller frms in the
public and private sectors for many years,
Teresa now works independently providing
strategic advice to ambitious, growing
businesses and liberating these businesses
from unnecessary regulation. She holds a
number of non-executive directorships and
has a variety of mentoring and advisory roles
in other growth businesses.
Teresa was Deputy Chair of the
Government’s Better Regulation
Commission having worked for twenty years
in the deregulation and better regulation
arena. She is Chairman of the Administrative
Burdens Advisory Board of HMRC and a
member of the Treasury’s Ofce for Tax
Simplifcation, and has recently returned
from number 11 Downing Street where she
was honoured for her work with HMRC.
14 | British Business Bank Strategic Plan
WHO WE ARE
THE BOARD
British Business Bank Strategic Plan | 15
Ceri Smith
Shareholder Representative
Director
Ceri heads the Business Bank and Public
Data Group team in the Government’s
Shareholder Executive, and is responsible
for the successful delivery of the British
Business Bank. He has held a number of
senior positions in the Department for
Business, Innovation and Skills advising
the Secretary of State on a range of issues
including business fnance, industrial
strategy, infrastructure and the UK’s
employment law framework.
Patrick Magee
Shareholder Representative
Director
Patrick joined the Government’s Shareholder
Executive in June 2012. He has been involved
in assisting with the establishment of The
Green Deal Finance Company, the set-up and
governance of the British Business Bank as
well as work on a range of the companies in
the Shareholder Executive portfolio.
Before joining the Shareholder
Executive, Patrick was a Managing Director
of corporate fnance at JP Morgan Cazenove,
having worked at its predecessor frms for
almost eighteen years.
Maria Turner
Non Executive Director –
Risk Committee Chair
Maria has over 27 years of risk
management experience, managing risk
in wholesale, retail, commercial, and in
investment banking businesses.
Maria is currently Chief Risk Of cer at
Mizuho International Plc bank in London.
She is a senior Managing Director and
a member of the company’s Executive
Committee.
16 | British Business Bank Strategic Plan
Our senior management team comprises
expertise from the public and private
sectors, and includes specialists in
product development, fnance and risk
management.
16 | British Business Bank Strategic Plan
Strategy
and
Markets
Finance
Venture
Capital
Solutions
Lending
Solutions
WHO
WE ARE
THE EXECUTIVE
We are organised into eight
teams, four of which provide
central functions and four of
which are market-facing:
Ken Cooper
Managing Director, Venture
Capital Solutions
Heading up our Venture Capital Solutions
team, Ken is responsible for the design and
delivery of a range of programmes that
support the fow of venture capital based
investment into smaller businesses. Ken has
a wealth of experience in venture capital
and access to fnance. As part of the senior
management team at Capital for Enterprise,
he led on the design and management
of a range of Government-backed equity
support programmes.
Prior to that, Ken spent six years with the
Government’s Small Business Service where
he was responsible for fnance policy for
smaller businesses. Ken is a Director of the
UK Business Angels Association.
Shanika Amarasekara
General Counsel &
Company Secretary
Shanika is the General Counsel & Company
Secretary at the British Business Bank. In
this role she is responsible for ensuring
that the legal interests of the bank and its
stakeholders are protected and ensuring
that the governance aspects of the
institution function smoothly.
Shanika joined the bank in June 2014.
Prior to this she worked as General Counsel
at an institution established by a number of
central banks to promote fnancial stability
and economic development. Shanika has
previously worked at RBS as a Director in
their structured fnance team and prior to
this was a senior associate in the capital
markets team at Allen & Overy.
Risk &
Compliance
General
Counsel/
central
functions
Investment
Programme/
British
Business
Bank
Investments
Wholesale
Solutions
British Business Bank Strategic Plan | 17
Reinald de Monchy
Managing Director, Wholesale
Solutions
As Managing Director of the Wholesale
Solutions team, Reinald is responsible for
the design and delivery of funding and
capital programmes to help increase the
fow of fnance to smaller businesses.
Prior to joining the Business Bank,
Reinald worked for over 12 years
securitising a wide variety of asset classes
including loans to smaller businesses,
corporates, private fnance initiatives,
leveraged fnance, registered social
landlords and emerging markets borrowers.
Between 2005 and 2013, he worked for
Lloyds Bank as Head of SME and Corporate
Loan Securitisation. Prior to joining Lloyds,
Reinald worked for MeesPierson (later Fortis
Bank) and for Rabobank.
Judith Ozcan
Managing Director,
Lending Solutions
As head of the Lending Solutions team,
Judith manages a range of programmes that
support the fow of debt-based fnance into
smaller businesses, helping them to prosper,
grow and build UK economic activity. Judith
has worked in a variety of senior fnance
roles in Government and the private sector.
Judith was previously a Director of Real
Estate at HBOS, before which she held a
number of roles in corporate banking.
Mark Gray
Managing Director, Risk
and Compliance
Mark heads up our Risk and Compliance
department, providing the Board,
shareholder and key stakeholders with
assurance that the Bank is operating with
integrity, to high standards and within its
risk appetite.
Mark joined the British Business Bank in
November 2013. He was previously Chief
Risk Ofcer at Shawbrook for two years.
He spent ten years at General Motors
Acceptance Corporation (GMAC), as Chief
Risk Ofcer in two diferent international
divisions, and also worked as Director of
Structured Finance. Previously Mark worked
in Investment Banking for Banque Nationale
de Paris, Swiss Bank Corporation, Credit
Suisse First Boston and Morgan Stanley.
18 | British Business Bank Brochure 18 | British Business Bank Strategic Plan
WHO WE ARE
THE EXECUTIVE
Andrew van der Lem
Managing Director, Strategy
& Markets
As Managing Director of Strategy & Markets,
Andrew is responsible for setting the Bank’s
strategy going forward, through business
planning, product development, market
analysis and programme evaluation.
Andrew has worked on the Business Bank
project within the Department for Business,
Innovation and Skills from its inception, and
was previously responsible for access to
fnance policy for smaller businesses.
An economist by background, Andrew
has worked on a range of policy issues in
Government, including competition policy,
regulatory reform, intellectual property rights
and trade policy. He spent four years from
2002 to 2006 seconded to the Foreign and
Commonwealth Ofce representing the UK in
EU negotiations, and has also worked in the
Cabinet Ofce and the European Commission.
Peter Wilson
Managing Director, Investment
Programme
Peter is Managing Director of the
Investment Programme, which addresses
long-standing gaps in the fnance market
for smaller business and promotes greater
choice in their supply of lending.
Before joining the British Business Bank,
Peter’s previous career was spent largely
in private equity. As Partner and Managing
Director at Warburg Pincus, he was
responsible for European Financial Services
investments. Prior to joining Warburg
Pincus, Peter spent nine years at Electra
Partners, where he was a founder Director
of Electra Partners Europe. Before starting
his investment career, Peter spent fve years
with the Boston Consulting Group.
Neil Wood
Interim Chief Financial Ofcer
and Managing Director, Central
Services
Neil is responsible for the development
of the Bank’s fnancial management and
reporting strategy, capability, framework
and systems and processes. Neil joined
the Bank in May 2014 on secondment
from Deloitte where he is a partner in the
programme management practice. Neil
has over seventeen years of experience
in audit. From 2005 until 2013 he was
seconded to The London Organising
Committee of the Olympic Games and
Paralympic Games Ltd (LOCOG) as its Chief
Financial Ofcer, and was at the heart of
the fnancing, planning and delivery of the
Olympic and Paralympic Games.
British Business Bank Strategic Plan | 19
Smaller businesses are a crucial part of the
UK economy. At the start of 2013, there were
around 4.9 million smaller businesses in the
UK, employing over 14 million people, and
contributing 48% of the economy’s private
sector turnover. (There is no standardised
defnition of a smaller business, but we mean
companies with fewer than 250 employees.
For some programmes, we also often apply
an EU defnition which comprises businesses
with annual turnover of £43 million or less.)
Well-functioning markets for fnance
ensure a dynamic small business sector,
producing new and improved goods and
services and so raising productivity and the
UK’s international competitiveness. One of the
Government’s priorities is to rebalance the UK
economy away from Government spending
and consumption towards more business
investment and sustainable growth.
However, the UK has the lowest level of
business investment of all the OECD countries.
The ratio of UK business investment to GDP
is 8% compared to over 10% for the USA,
Germany and France (OECD 2011 fgures
on Private Non-Residential Gross Fixed
Capital Formation). Although the economy is
expanding and employment rates are rising,
business investment remains relatively
static, due in part to business uncertainty
over future economic conditions and funding
constraints afecting smaller businesses.
Finance is required to increase investment
and to help companies grow. The Federation
for Small Businesses’ Voice of Small Business
Index (Quarter 1 2014) shows that smaller
businesses performed strongly in 2013 and
the frst quarter of 2014 – with a positive
net balance in the number of businesses
reporting growth in revenue. Expectations
amongst businesses on the future outlook
of the economy also remained strong with
26.6% of businesses reporting that they
intended to increase investment in the
next 12 months, the highest level since the
survey began. Yet despite these encouraging
signs the stock of bank lending for smaller
businesses continues to decline.
WHY WE ARE
NEEDED
Smaller businesses cannot
always obtain the fnance
they need
Smaller businesses are crucial to economic growth
M
a
r
2
0
0
8
M
a
r
2
0
0
9
M
a
r
2
0
1
0
M
a
r
2
0
1
1
M
a
r
2
0
1
2
M
a
r
2
0
1
3
J
u
l
2
0
0
8
J
u
l
2
0
0
9
J
u
l
2
0
1
0
J
u
l
2
0
1
1
J
u
l
2
0
1
2
J
u
l
2
0
1
3
N
o
v
2
0
0
8
N
o
v
2
0
0
9
N
o
v
2
0
1
0
N
o
v
2
0
1
1
N
o
v
2
0
1
2
N
o
v
2
0
1
3
P
e
r
c
e
n
t
a
g
e
c
h
a
n
g
e
s
o
n
a
y
e
a
r
e
a
r
l
i
e
r
-10.0
5.0
-5.0
10.0
0.0
15.0
20.0
BIS Bank of England BBA
Rate of decline in the stock of SME lending
Source: Bank of
England Trends in
Lending, April 2014
20 | British Business Bank Strategic Plan
Demand for fnance from smaller businesses also remains subdued. Only 16% sought or renewed external funding in Quarter 1 2014, a
decrease from levels seen in the preceding years.
Success rates for smaller businesses seeking external fnance also continue to deteriorate. In the frst quarter of 2011, around 70% of
smaller businesses seeking fnance were able to obtain funding but this has dropped to 65% in the same period of 2013.
WHY WE ARE NEEDED
Small frms who wanted to apply but didn’t 5% 273,000 small frms
Small frms that applied for new fnance, or renewed
facilities, including automatic renewals
16% 728,000 small frms
Did not apply, but did not feel anything stopped them 78% 3.5 million small frms
Proportion of smaller businesses seeking fnance in last 12 months
Success rates for smaller business seeking bank fnance
Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13
Offered what
wanted or
took facility
after issues
70% 72% 69% 70% 67% 68% 68% 75% 64% 60% 65% 65%
Got funding
elsewhere
8% 7% 4% 6% 4% 3% 6% 4% 7% 6% 4% 4%
No facility 22% 21% 27% 24% 28% 29% 26% 21% 30% 34% 31% 31%
Source: BDRC SME Finance Monitor, Q1 2014
Source: BDRC SME Finance Monitor, Q1 2014
British Business Bank Strategic Plan | 21
At present the largest four banks account
for over 80% of UK smaller businesses’
main banking relationships. Whilst the
Government is working hard to improve
competition in the banking sector, there is
a range of challenges faced by new banks
trying to enter the market. These include
regulatory barriers, low rates of switching
by consumers and reduced access to
information to assess creditworthiness of
lending applicants compared to existing
fnance providers. This concentration and
the challenges to enter the banking market
results in credit rationing, a lack of product
diversity and higher costs. In addition, when
large incumbent banks pull back from the
market, smaller business borrowers are
often left without sufcient alternative
sources of fnance.
The high concentration of the UK
banking market also means that smaller
businesses are less aware of alternative
fnancing options outside of the largest
banks, including challenger banks and
alternative fnance providers. Businesses
may also lack information on how to present
themselves as viable propositions, resulting
in some potentially viable businesses not
getting the fnance they need.
Lending to smaller businesses is
particularly capital intensive, and hence
less proftable for banks compared to other
types of lending. This is refected in higher
rejection rates for smaller businesses - 53%
of sole trader businesses who applied for
a loan were declined funding, compared to
9% of businesses with 50-249 employees
(from Quarter 3 2012 to Quarter 4 2013).
In the current economic climate, banks are
likely to be capital-constrained due to post-
crisis deleveraging and international and
national banking regulations designed to
stabilise the banking sector against
future volatility.
There are also structural market
failures due to imperfect information.
Before advancing credit, lenders must
assess borrowers’ ability to repay based
on assessing the company’s performance
and future prospects. Despite advances in
credit scoring techniques, it can be costly
for banks to assess small loans to smaller
companies. Many lenders therefore rely
on evidence of past track record, and
availability of collateral, which prevents
some viable smaller and newer companies
that lack long track record and security from
raising bank fnance.
These types of issues also extend to
equity markets. It has long been recognised
that there is an ‘equity gap’ in the provision
of smaller amounts of equity fnance. The
equity gap is currently estimated to afect
equity deals of up to £2-5m. This is because
assessing the quality of proposals, and
judging the associated risks of investing in
young businesses is difcult. The cost of
undertaking due diligence generally does
not change by size of investment and so can
often be disproportionately high for smaller
investments– sometimes accounting for
10% or more of the investment. This has
resulted in a structural gap in the market
where investors and fund managers focus
on fewer, larger investments in more
established (and therefore lower risk)
businesses at the expense of early stage
venture capital. There are also cyclical
factors currently afecting the Venture
Capital market, with low levels of fund
raising for new venture capital funds
compared to before the recession, as
investors look for lower risk and more
liquid assets.
Structural issues in the market for business fnance
53%
OF BUSINESSES WITH
0-49 EMPLOYEES
who applied for a
loan were declined
l Our goal is to change the structure of
fnance markets for smaller businesses,
so these markets work more efectively
and dynamically. This will help
businesses prosper and build economic
activity in the UK.
l That’s why
• We will increase the supply of fnance
available to smaller businesses where
markets don’t work well.
• We will create a more diverse and
vibrant fnance market for smaller
businesses, with a greater choice of
options and providers.
• We will build confdence in the market
by increasing smaller businesses’
understanding of the options available
to them.
• We will achieve this whilst managing
taxpayer resources ef ciently and
within a robust risk management
framework.
Smaller businesses will often need to
seek external fnance as they look to grow
and invest. Diferent types of businesses will
require diferent forms of fnance at particular
stages in their development; there is no one-
size-fts-all solution. Early stage, fast-growing
businesses may require equity fnance, while
companies with more predictable cash fows
could be better suited to debt-based fnance.
Having knowledge of, and access to, a full
range of fnance options is critical.
OUR
OBJECTIVES
Equity Finance Debt Finance
Seed
Finance
Angel
Finance
Equity
Crowdfunding
Venture
Capital
Private
Equity
IPO/Public
Ofering
Start-up
Loan
Overdraft Loan
Peer to peer
lending
Asset-based
Finance
Leasing
and Hire
Purchase
Export
Finance
Trade
Finance
Mezzanine
Pre-trading
l
Pre-proft
l l
Proftable growing business
l l
Established and steadily growing
l l
Established stable business
l
Launching new product/service/
brand
l
Making acquisitions
l l l
Expanding into new territories
l l l
Investing in new facilities
l l
Looking to refnance
l
The British Business Bank is active across
a broad spectrum of the fnance market
for smaller businesses and continually
evaluates where it should commit future
funding to meet its strategic goal.
We are an evidence-based organisation,
and are putting considerable resources
into data-gathering and analysis in order
to properly inform our resource allocation
process. We are uniquely placed to
understand business fnance markets
for smaller frms. Later in 2014 we will
publish a detailed “State of the Market
Report” with insight into latest market
developments, the characteristics of
diferent sub-markets, such as Fintech and
alternative forms of fnance, as well as the
linkages with macroeconomics.
We will publish all our research as well
as all our economic evaluations of our
programmes.
22 | British Business Bank Strategic Plan
Our programmes are designed to enhance
smaller businesses’ access to the full range
of options. We focus on areas where the
markets don’t work well and where we can
catalyse greater competition and diversity in
fnance provision.
The following table shows the various
options available to diferent business
stages and where the Bank is currently
active.
Equity Finance Debt Finance
Seed
Finance
Angel
Finance
Equity
Crowdfunding
Venture
Capital
Private
Equity
IPO/Public
Ofering
Start-up
Loan
Overdraft Loan
Peer to peer
lending
Asset-based
Finance
Leasing
and Hire
Purchase
Export
Finance
Trade
Finance
Mezzanine
Pre-trading
l
Pre-proft
l l
Proftable growing business
l l
Established and steadily growing
l l
Established stable business
l
Launching new product/service/
brand
l
Making acquisitions
l l l
Expanding into new territories
l l l
Investing in new facilities
l l
Looking to refnance
l
British Business Bank Strategic Plan | 23
Business Bank is active in this area
Business Bank is planning to become active in this area
Products available in the market
l
T
he British Business Bank is a 100%
Government-owned institution
which will operate to fulfl a public
policy objective. Unlike most banks,
our impact is not measured in terms of
profts generated but rather by the beneft of
increased economic activity it creates.
We are doing this to ensure that there
is a vibrant, diverse and sustainable private
sector market for small business fnance.
We are not a traditional ‘bank’ which
accepts deposits and lends to businesses
through dedicated distribution channels and
relationship managers. Instead, we make
investments and ofer guarantees through a
very broad range of private sector partners.
This allows us to work with the market rather
than to replace it, and ensures that our
support increases competition and reaches
smaller businesses as efciently as possible.
Working with the private sector also
allows the Bank to leverage its impact by
stimulating the deployment of signifcant
quantities of additional funding. For each
£1 the Bank invests or guarantees over the
next fve years, we expect a private sector
contribution of £2 to £3.This makes the most
use of Government funds and generates a
meaningful impact in the market.
The Bank brings together the
management of all Government-supported
national access-to-fnance programmes for
smaller businesses (with the exception of
export fnance, housing fnance and grant
programmes) under one management
structure.
Our headquarters are in Shefeld with a
further ofce in London. Our team combines
expertise from the private sector, including
specialists in product development, fnance
and risk, policy and economic assessment
skills from the public sector.
Although the Bank has a public policy
objective, it will act in a commercially-minded
way to invest Government money most
efectively for the best possible beneft.
Relationship with the Shareholder
Once State aid approval has been obtained’
to the start of this sentence. So ‘Once State
aid approval has been obtained, the British
Business Bank will be an operationally
independent institution that operates at arm’s
length from Government.
The Secretary of State for Business,
Innovation and Skills, through the
Government’s Shareholder Executive, will
hold 100% of shares in the Bank.
The shareholder will set the Bank’s remit
and high level strategic objectives. We will
seek approval from the shareholder for a
medium term business plan, updated on an
annual basis, and will design and operate our
own programmes.
A number of existing assets comprising
fund investments made historically by
Government will move onto the Bank’s
balance sheet. In line with the agreed
business plan, we will have the freedom to
draw down additional funding and recycle
funding from existing commitments.
We will be required to marry an approach
based on the best practice of corporate
governance for a smaller quoted company with
the principles of ‘Managing Public Money’ and
other public sector frameworks.
HOW WE
ARE RUN
24 | British Business Bank Strategic Plan
For each £1 the Bank
invests or guarantees over the
next fve years, we expect a
private sector contribution of
£2 to £3
British Business Bank Strategic Plan | 25
HOW WE
ALLOCATE OUR
RESOURCES
W
e want to focus our resources on areas where markets are not working well. Markets change over time, and the
types of frms that are well or not well served changes over time too. Our fexible business planning process refects
this changing environment. The development of new products, and the improvement of existing products is
essential to help meet our goals.
All potential and existing products will be assessed against a set of criteria which include:
l Monetised economic impact – net present value, following a British Business Bank methodology that applies standard Government principles
l Non-monetised costs and benefts – such as innovation, exports, competition and longer-term market creation
l Market imperfection targeted – a qualitative assessment of how well a specifc market failure is being addressed
l Delivery considerations – including scale, speed of deployment, funding required, capacity, risk and regulation.
1. Assess market
environment
2. Defne priority areas 6. Deliver operational
plan
3. Assess impact of existing
activities and need for new
areas of activity
5. Agree business
plan with board and
shareholder
4. Financial models for
resource allocation and
forecast. Risk assessment
Business planning process
MARKET
SEGMENTATION
W
e use our analysis of the market
to segment smaller businesses
into three target groups, which
we believe are most acutely
afected by market imperfections and which
could make a more valuable contribution to
the UK economy if they were able to access
the fnance they need.
Start-ups
Firms less than two years old make
up around a ffth of the UK’s smaller
businesses. They also have the highest
rejection rate for bank loans of all
smaller businesses; around three-ffths
compared with just over a third for smaller
businesses overall. Start-ups are also
more likely to have a high proportion of
discouraged borrowers - frms that would
have liked to apply for fnance but were
discouraged from applying by their bank.
Growth frms – companies that have
achieved positive growth over the
last 12 months
These companies represent around 30%
of all smaller businesses. In periods of high
growth, frms will often become stretched
and will need to access fnance in order to
keep investing in their business. If unable
to access this fnance, they are likely to
see their growth constrained, leading to
lower growth across the whole economy.
While these companies generally have
more success applying for fnance than
most smaller frms as a whole, they also
have much higher rejection rates than
medium-sized businesses (companies with
turnover between £25 and £500 million).
Improving the success rate among growth
frms applying for fnance could signifcantly
contribute to the UK economy.
Other viable but underfunded
companies
These are stable, viable companies which
nevertheless require external fnance
for the day-to-day running of their
business. Once again, these frms face
higher rejection rates than medium sized
businesses, often despite having good
risk ratings and balance sheet. Studies
have found that the tightening credit
conditions following the fnancial crisis
disproportionately afected smaller frms
with low to average risk ratings, while the
rejection rates for higher-risk companies
remained the same.
14%
14% of the total number of
start-ups are not currently
served by the market.
9%
of the total number of
growth frms are not served
by the market; they are
either rejected outright or
discouraged from applying
for fnance.
7%
of the total number of low
and average growth frms
that are not properly served
by the market.
We are uniquely
placed to understand
business fnance
markets for smaller
frms”
26 | British Business Bank Strategic Plan
British Business Bank Strategic Plan | 27
OUR
PROGRAMMES
W
e have segmented the market into three core target groups: start-ups and early stage frms; frms planning to grow, and other
stable frms with viable business propositions not able to obtain fnance.
Our programmes are designed to make fnance markets work better for these groups. The table below shows which of our
activities targets identifed market gaps:
Start-ups Growing frms Other viable underfunded frms
Venture Capital Solutions
Lending Solutions
Investment programme
Wholesale Solutions
MARKET
SEGMENTATION
28 | British Business Bank Strategic Plan
VENTURE
CAPITAL
SOLUTIONS
Our Venture Capital Solutions team is focused on supporting a vibrant and diverse venture capital market to support early stage and high-
growth frms in the UK. The team is responsible for the design and delivery of a range of products that support the fow of venture capital
based investment into smaller businesses.
Venture Capital Solutions
Angel CoFund
Enterprise Capital
Funds
VC Catalyst Fund Aspire Fund
British Business Bank Strategic Plan | 29
For smaller, younger frms, our main
activity is focused on the Business
Angel Co-Fund, which makes equity
investments of between £100,000 and £1
million in smaller businesses in the UK.
The Co-Fund invests alongside business
angel syndicates, where a number of
angel investors team up, to generate
sufcient capital to help smaller businesses
really fourish. Through these commercial
investments, the Co-Fund is able to
ensure that companies are properly
fnanced to a level which allows them
to reach meaningful points in their
development, fund research, open up
new markets or deliver new projects. This
targets an important equity gap for smaller
businesses seeking fnance. The businesses
supported by the Co-Fund have high growth
potential, often looking to extend well
beyond our domestic markets, and cover
sectors such as medical instruments, high
tech manufacturing and internet enabled
technologies.
In 2013/14 the Co-Fund supported £35.8
million of investment in smaller businesses.
Collectively, businesses backed by the Co-
Fund employ over 700 people, but through
the next eight years of the fund’s life we
expect to support more than 6,000 jobs.
Enterprise Capital Funds (ECFs) are
our main support for early-stage venture
capital. These funds are structured so
that Government provides two thirds of
funding (up to £50 million), and private
sector investors match this with one
third. The private sector investors take
on relatively more risk and are granted a
larger share of the returns, incentivising
private sector involvement in this part of
the market.
Each fund is managed by an experienced
fund manager, pulling in private sector
capital from a variety of sources – including
teams from the venture capital industry
as well as serial entrepreneurs with a
history of success in building early stage
UK companies. Applications from the fund
managers are subject to a competitive
process and are evaluated by our venture
capital team before a decision to co-invest
into a fund is made.
The programme currently has sixteen
separate funds, of which nine are currently
investing, with a combined investment
capacity of over £530 million. In the last
fnancial year, the funds invested £39.2
million in smaller businesses.
Case Study: Gousto
Gousto provides customers with fresh
organic ingredients for a wide range of
exciting menus, delivered straight to
the door to cook at home. Customers
choose recipes online, and have all the
ingredients delivered in the correct
proportions, alongside recipe cards and
cooking instructions. Founded in 2011,
it now delivers over 10,000 meals a
month. Gousto received a combined
£500,000 from the Angel CoFund and
an angel syndicate, which enabled
Gousto to secure a further £1m in
institutional funding.
Case study: Sirigen
Based in Ringwood, Hampshire and
with an ofce in California, Sirigen has
developed technology that improves
the diagnostics of clinical tests. ECF
funding enabled Sirigen to launch the
product and start sales, while investors
also provided strategic direction to
the business. Two large commercial
contracts followed and the company
was successfully sold in September
2012 to Becton Dickinson for a
signifcant undisclosed sum, generating
up to a 4x return to investors.
Forward Plan
We anticipate that the Co-Fund
will be able to back around 50
new investments each year
during the next few years,
setting a commitment to recycle
at least £40 million of that
investment into new businesses
within its frst ten years.
Forward Plan
We have recently secured State
aid approval from the European
Commission to extend our
programme, allowing larger
funds – an increase in the initial
investment round size from £2
million to £5 million – and larger
investments – an increase in the
maximum investment from £25
million to £50 million. Since the
fnancial crisis, the ‘equity gap’
in the venture capital space has
grown, as some investors have
withdrawn due to poor returns
over the last few years. This
change will therefore help us
to better address the current
market gap in the venture
capital area.
Business Angel Co-Fund
Enterprise Capital Funds (ECFs)
30 | British Business Bank Strategic Plan
VENTURE CAPITAL
SOLUTIONS
AMADEUS IV EARLY STAGE FUND
Amadeus Capital Partners amadeuscapital.com
Seed and early-stage disruptive tech in ‘big data’ analytics,
cloud computing, cyber security, low-power computing,
‘internet of things’, medical tech and digital healthcare
Notable investment: N/A
Fund size (to
date) £33.2m
From government
£15.0m
Invested
£0.0m
Investments
0
Exits
n/a
Launched
2013
Investing
YES
IQ CAPITAL FUND I
IQ Capital Partners iqcapital.co.uk
Focuses on seed and early-stage high-tech ventures
Notable investment: Neul
Fund size
£25.0m
From government
£16.7m
Invested
£22.8m
Investments
14
Exits
3
Launched
2006
Investing
NO
AMADEUS & ANGELS SEED FUND
Amadeus Capital Partners amadeuscapital.com
Makes seed-stage tech investments
Notable investment: OneDrum
Fund size
£10.0m
From government
£6.5m
Invested
£6.0m
Investments
8
Exits
1
Launched
2006
Investing
NO
FORESIGHT NOTTINGHAM FUND
Foresight Group foresightgroup.eu/nottingham
High-growth businesses based in Nottinghamshire
Notable investment: Positive Outcomes
Fund size
£40.0m
From government
£25.0m
Invested
£2.0m
Investments
2
Exits
n/a
Launched
2013
Investing
YES
CATAPULT GROWTH FUND
Catapult Ventures catapult-vm.co.uk
Invests in early growth-stage companies across
most sectors
Notable investment: Oxford Biotherapeutics
Fund size
£30.0m
From government
£18.0m
Invested
£25.5m
Investments
20
Exits
1
Launched
2006
Investing
NO
OXFORD TECHNOLOGY ECF
Longwall Ventures longwallventures.com
Invests in early-stage science/healthcare, engineering
and software
Notable investment: Merciria
Fund size
£30.0m
From government
£20.0m
Invested
£22.0m
Investments
19
Exits
2
Launched
2008
Investing
NO
LONGWALL VENTURES ECF
Longwall Ventures longwallventures.com
Disruptive early-stage science, engineering and
technology B2B ventures.
Notable investment: Oxford Photovoltaics
Fund size
£40.0m
From government
£25.0m
Invested
£3.5m
Investments
8
Exits
n/a
Launched
2012
Investing
YES
GLASGOW
British Business Bank Strategic Plan | 31
LONDON
PASSION CAPITAL
Passion Capital passioncapital.com
Seed investor in digital media and consumer
technology ventures
Notable investment: Mendeley
Fund size
£37.5m
From government
£25.0m
Invested
£18.0m
Investments
39
Exits
4
Launched
2011
Investing
YES
SERAPHIM CAPITAL FUND
Seraphim Capital seraphimcapital.co.uk
Invests £600,000-1.5m in ‘disruptive’, scalable early-stage
tech Notable investment: Sirigen
Fund size
£30.0m
From government
£20.0m
Invested
£25.2m
Investments
12
Exits
1
Launched
2006
Investing
NO
EPISODE 1 INVESTMENTS
Episode 1 episode1.com
Backs UK software start-ups that have launched viable
products to a few “reference” customers
Notable investment: Carwow
Fund size
£37.5m
From government
£25.0m
Invested
£2.1m
Investments
4
Exits
n/a
Launched
2013
Investing
YES
PANORAMIC ECF1
Panoramic Growth Equity pgequity.com
Private equity investor in UK growth SMEs with £1m+
revenues across all mainstream sectors, except life
sciences and turnarounds
Notable investment: Solfex Energy Systems
Fund size
£34.0m
From government
£20.0m
Invested
£10.7m
Investments
8
Exits
1
Launched
2010
Investing
YES
DAWN CAPITAL ENTERPRISE FUND
Dawn Capital dawncapital.com
Traditional industries adopting innovative technology
to improve products and services
Notable investment: Mimecast
Fund size
£30.0m
From government
£20.0m
Invested
not disclosed
Investments
12
Exits
0
Launched
2006
Investing
NO
NOTION CAPITAL 2
Notion Capital Partners notioncapital.com
Focuses on cloud computing and
software-as-a-service businesses
Notable investment: Shutl
Fund size
£76.3m
From government
£25.0m
Invested
£19.5m
Investments
13
Exits
1
Launched
2012
Investing
YES
MMC ENTERPRISE CAPITAL FUND
MMC Ventures mmcventures.com
Invests in technology-enabled businesses in high-
growth sectors, including financial services, business
software and services, digital media and e-commerce
Notable investment: AlexandAlexa
Fund size
£30.0m
From government
£20.0m
Invested
£22.4m
Investments
13
Exits
0
Launched
2008
Investing
NO
SUSTAINABLE TECHNOLOGY FUND
Disruptive Capital Finance disruptivecapital.com
Invests in cleantech, green and sustainable-technology
ventures
Notable investment: ECO Plastics
Fund size
£30.0m
From government
£20.0m
Invested
£24.0m
Investments
6
Exits
0
Launched
2006
Investing
NO
REGENTS PARK PARTNERS II
Sussex Place Ventures spventures.com
Backs early-stage technology ventures
Fund
£30.0m
From government
£20.0m
Invested
£0m
Investments
n/a
Exits
n/a
Launched
2014
Investing
YES
MELTON MOWBRAY
HARWELL
CAMBRIDGE
NOTTINGHAM
S
O
U
R
C
E
:
I
C
A
E
W
C
O
R
P
O
R
A
T
E
F
I
N
A
N
C
E
F
A
C
U
L
T
Y
R
E
S
E
A
R
C
H
-
E
C
F
F
U
N
D
M
A
N
A
G
E
R
S
£543.5m has been
committed to
16 ECFs, managed by
14 fund managers.
More than £204m has been
invested in
169 companies, leaving
more than £300m
still to be invested.
©
I
C
A
E
W
2
0
1
4
.
F
I
R
S
T
P
U
B
L
I
S
H
E
D
I
N
C
O
R
P
O
R
A
T
E
F
I
N
A
N
C
I
E
R
M
A
G
A
Z
I
N
E
32 | British Business Bank Strategic Plan
In addition to the ECF programme, we also
have the capacity to help close funds for
slightly later stage venture capital. Our VC
Catalyst Fund invests - on the same or better
terms than private investors - in commercially
viable venture capital funds which might
otherwise fail to launch, enabling them to
invest in smaller, high growth businesses.
It addresses a cyclical weakness in the
provision of institutional capital to venture
capital funds which has made it more
challenging, even for established teams
in the market, to reach a satisfactory frst
close. It targets commercial returns from
its investments, in line with that of private
sector investors, and looks to ensure that
at least twice the Government funding
committed is invested in UK companies.
The Fund typically commits between
£5 million and £10 million to underlying
funds; this will not be more than 20% of
the total fund size. Applications from fund
managers are subject to a competitive
process, and potential fund managers are
only considered formally for the Fund once
they have signifcant private investment
already committed. Funds will typically
have a minimum size of at least £50 million
at their frst close, though proposals for
smaller funds will be considered on a case-
by-case basis.
Panoramic ECF 1 – Panoramic Growth Equity
UK-wide – Generalist growth equity
www.pgequity.com
Passion Capital ECF – Passion Capital
UK-wide – Early stage digital media and
technology start ups
www.passioncapital.com
Notion Capital Fund 2 – Notion Capital
UK-wide – Internet-based services including
cloud computing
www.notioncapital.com
Notion Capital Fund 2 – Notion Capital
UK-wide – Stage science, engineering and
technology
www.longwallventures.com
Amadeus IV Early Stage Fund ECF – Amadeus
Capital Partners
UK-wide – Companies developing disruptive
technologies
www.amadeuscapital.com
Dawn Capital II – Dawn Capital
UK and Europe – Targeted at businesses in the
cloud, software and consumer internet sectors
www.dawncapital.com
Episode 1 ECF – Episode 1
UK-wide – Early stage software
www.episode1.com
Foresight Nottingham Fund – Foresight Group
Nottinghamshire region – Generalist
/www.foresightgroup.eu/nottingham/
the-fund.asp
Regents Park Partners II ECF LP – Sussex Place
Ventures
UK-wide – Early Stage Growth Companies
www.spventures.com
Forward Plan
Due to the successful pilot, we are
currently extending the VC Catalyst
Fund to £125 million. We will use this
extension to attract signifcant private
sector funding and deliver major
investment into UK companies over
the next ten years.
VC Catalyst Fund Enterprise Capital Funds currently investing:
VENTURE CAPITAL
SOLUTIONS
British Business Bank Strategic Plan | 33
The Aspire Fund invests in women-led
businesses across the UK. It makes
investments of between £100,000 and
£1 million on a co-investment basis,
investing on the same or better terms
as private investors. Lead investors can
be established venture capital funds or
experienced business angels. The Aspire
Fund helps to increase the number of
successful women-led businesses within
the UK, and to ensure those with real
potential to succeed are not held back
through a lack of growth capital. The Aspire
Fund supported £5.5 million of investment
in smaller businesses in 2013-14.
Aspire Fund
Case Study: Wool and The Gang
Wool and The Gang is an online
boutique specialising in fashion
knitwear selling ready-to-wear items or
kits to knit for customers to create their
own unique versions.
It was established in 2008 by Central
St Martins graduates Aurelie Popper
and Jade Harwood, with Lisa Rodwell,
formerly of Moo.com, as Chief Executive
to implement the new business strategy.
The £200,000 from the Aspire Fund will
enable them to expand their business.
We will also manage a large portfolio of legacy investments made by Government in
venture capital and also some debt funds. For example, we oversee large local fnance
interventions for smaller businesses which have been funded by a mixture of UK and
European money, including the three northern English funds supported by EU funding,
which together provide more than £450 million of investable capital for smaller
businesses. We also manage BIS’s interests in 90 regional funds with commitments of
over £1 billion.
As well as providing oversight for existing funds, British Business Bank expertise
is instrumental in helping to shape the future access to fnance landscape for smaller
businesses, working in conjunction with BIS, the Department for Communities & Local
Government and the 39 English Local Enterprise Partnerships (LEPs).
The Aspire Fund helps to increase the number of successful women-led
businesses within the UK, and to ensure those with real potential to succeed
are not held back through a lack of growth capital”
34 | British Business Bank Strategic Plan
LENDING
SOLUTIONS
Our Lending Solutions team manages a range of programmes and products that support the fow of debt-based fnance into smaller
businesses, helping them to prosper, grow and build UK economic activity. The team facilitates lending for smaller businesses through a
number of diferent mechanisms.
Lending Solutions
Start-Up
Loans
Enterprise Finance
Guarantee
For very small, very early stage frms, we
provide funding through the Start-Up Loans
programme, which supports entrepreneurs
looking to start their own business, who
have potentially viable propositions but
cannot otherwise attract investment from
a high street bank. The programme ofers a
repayable loan of up to £25,000, over up to
fve years, combined with a business mentor.
The Start-Up Loans programme is run
on a day-to-day basis by the Start-Up Loans
Company, an independent business created
expressly for the delivery of the programme.
The company has subsequently contracted
with over 70 delivery partners to deliver loans
and mentorship.
The Start-Up Loans programme lent over
£70.6 million to new entrepreneurs in the
last fnancial year, backing nearly 14,000
businesses. The programme is on track to
meet its target of supporting 30,000 new
businesses by 2015.
Case study: FittaMamma
Alexandra McCabe, a 29 year old entrepreneur from Burgess Hill has been given
a £9,500 Start-Up Loan to help develop her clothing line and resource centre for
active pregnant women. As well as funding, Alexander has benefted hugely from
the support provided to her through George Clayson, her mentor. The commercial
expertise George provided Alexandra was invaluable to the growth of her business.
Forward Plan
Having built momentum and expanded across the UK since its launch in 2012, the
Start-Up Loans programme will continue to support new entrepreneurs with up to
300 loans a week.
Start-Up Loans
British Business Bank Strategic Plan | 35
We also run the Enterprise Finance
Guarantee (EFG), which aims to improve
the availability of working capital
and investment funding for smaller
businesses. The EFG provides a partial
guarantee to encourage lending
institutions to lend to viable smaller
businesses that would otherwise be
declined for lacking collateral.
The guarantee is available to lenders
serving viable smaller businesses with
an annual turnover of up to £41 million,
seeking loans of between £1,000 and
£1.2 million over terms of between three
months to ten years. The product also
provides guarantees on invoice fnance,
overdrafts and other revolving facilities
over terms of up to three years. The EFG
is delivered by 42 accredited lenders
ranging from the main bank to very local
small lenders.
In the last fnancial year, the EFG facilitated around £350 million of lending, supporting over
3,000 smaller businesses. The majority of EFG loans drawn are worth less than £100,000. The
table below breaks down the percentage of EFG loans drawn between diferent value bands:
Mezzanine Finance is a hybrid between pure debt and pure equity fnance. It is often used by high growth mid-sized companies and by property
developers. In the 1980s and earlier, it was used by smaller companies, but has become less common since then.
Forward Plan
We are currently exploring how the Enterprise Finance Guarantee might be applied to unlock further fnance for smaller businesses, in
particular the possibility of applying the guarantee to asset fnance and trade credit facilities.
Enterprise Finance Guarantee
Mezzanine fnance
Case study: Viva Brazil
Viva Brazil is a Brazilian-style
restaurant using traditional
barbeque methods. It opened its frst
restaurant in Liverpool in September
2010 and the second in Glasgow a
year later. The expansion of the chain
to Cardif, creating 30 new jobs, was
facilitated by a £375k funding deal
from participating lender, Santander
Corporate Banking.
Less than £25K
£25,001 to £50K
£50,001 to £100K
£100,00 to £250K
£250,001 to £500K
£500,001 to £1 million
Percentage of number of EFG loans
drawn by value bands, Q1 2014.
How it works
Lender Borrower
Guarantee Payment
(Premium)
Acting as guarantor in lieu of
sufcient security
Loan or other debt facility
not otherwise available
Payment (Capital, Interest & Fees)
Forward Plan
We are currently gathering evidence regarding historic and international supply and demand of mezzanine fnance for smaller
businesses. We will publish an evidence paper in July 2014 and further proposals subsequent to that.
36 | British Business Bank Strategic Plan
INVESTMENT
PROGRAMME
O
ur Investment Programme
addresses long-standing gaps
in the fnance market for smaller
business and promotes greater
choice in their supply of lending.
The Programme launched in April
2013 and makes commercial investments
that stimulate at least the same amount
of investment from the private sector,
encouraging new lenders into the market
and the growth of smaller lenders.
Once state aid approval for the British
Business Bank is complete, we expect to
move the Investment Programme into a
subsidiary of the British Business Bank plc.
This may comprise all the Bank’s investments
that have a commercial rate of return, almost
£1 billion of commitments made to debt
funds and other lenders by Government.
Applications by innovative smaller
fnance providers for investments are
subject to a formal assessment process;
they are frst analysed by the Investment
Programme team before being progressed
to an Investment Advisory Panel, which is
made up of members of the Business Bank
Project’s Executive Committee and external
panel members, before a fnal investment
decision is made.
Since launch, the Investment Programme
has received over 100 applications, with
combined requests for funding of £3 billion.
To date, £198 million of awards have
been recommended by our Investment
Advisory Panel.
The Investment Programme is providing
support to a range of fnance providers
who meet the funding needs of smaller UK
businesses, funding growth, working capital
and asset acquisition. The Programme has
been established as an open competition,
the parameters of which permit the British
Business Bank to seek to build a diversifed
portfolio and prioritise catalytic ventures
– those capable of being scaled to provide
an enduring source of funding for smaller
businesses. The sub-sectors supported to
date have covered debt funds, peer to peer
platforms, and lease fnance.
The Programme builds on a forerunner
programme called the Business Finance
Partnership.
Case Study: Lund
Precision Reeds
Lund Precision Reeds can trace
its heritage back to 1871 and is
recognised as one of the world leading
manufacturers of high-quality weaving
reeds, warp preparation reeds and
yarn guides. Lund borrowed £50,000
through Funding Circle to enhance
growth opportunities in both the UK
and export markets. They also used the
fnance to upgrade existing machinery
to improve the quality of their products
and help them to penetrate more
demanding markets worldwide.
British Business Bank Strategic Plan | 37
Funders supported through the Investment Programme and Business Finance Partnership
Forward Plan
As the Investment Programme draws closer to awarding its total initial £300 million allocation, we will soon be announcing the next
phase of the Programme, which will continue to address specifc gaps in the fnance markets for smaller businesses.
The intention is also to transfer £863 million of commitments under the Business Finance Partnership made by HM Treasury to the
British Business Bank.
The Investment Programme is providing
support to a range of fnance providers who
meet the funding needs of smaller UK
businesses, funding growth, working capital
and asset acquisition”
BMS fnance
Beechbrook Capital
Boost Capital
Praesidian Capital
Market Invoice
CAML
Funding Circle
Zopa
URICA
38 | British Business Bank Strategic Plan
WHOLESALE
SOLUTIONS
Wholesale Solutions
Wholesale
Guarantees
Asset Funding
Finance Vehicle
The Wholesale Solutions team is responsible for the design and delivery of funding and capital products and programmes to help increase
the fow of fnance to smaller businesses.
We are developing a new programme
of Wholesale Guarantees which aims to
make lending to smaller businesses more
attractive to banks by increasing their
capital efciency. A request for proposals to
pilot the frst phase of this programme was
launched in March 2014. The programme
will share a portion of the underlying second
loss risk on portfolios of newly originated
loans, thereby giving a more favourable
capital treatment to participating banks.
The wholesale solutions team is working
on variants to this programme in order
to tackle diferent segments of smaller
business lending, work with a variety of
fnance providers, and potentially help
address both capital and funding constraints.
We have brought together a team with
signifcant experience of portfolio risk
transfer trades in the private sector to
develop this programme.
Wholesale Guarantees
Asset Finance Funding
Vehicle
We are currently developing an Asset Finance
Funding Vehicle which is designed
to help smaller businesses seeking
asset fnance.
We intend to deliver this in conjunction
with the European Investment Fund (EIF); the
programme and the EIF will each assume 50%
of the credit exposure.
The vehicle will combine portfolios
of newly originated asset fnance transactions
from a number of mid and smaller sized
originators. The programme will provide the
initial senior funding to warehouse the assets
until the aggregate portfolio size is sufciently
large for a capital markets take out.
Forward Plan
The team is currently in discussions
with potential lenders for the pilot,
with the frst transactions expected
to be structured in summer 2014.
Subject to positive outcomes of
these, the Wholesale Guarantees
programme will be opened to further
transactions.
Forward Plan
We are currently discussing this the
European Commission for State aid
approval.
WIDER
ACTIVITY TO
IMPROVE THE
MARKET
I
n addition to our activities which tackle
specifc market issues, we also have a
strategic objective to promote better
information in the market, building
confdence among smaller businesses in
their understanding of the fnance options
available. By raising businesses’ awareness
of fnance options or making it easier to fnd
them, supply and demand for fnance will be
brought together more efciently.
To achieve this, we work in partnership
with leading business representative
groups and fnance bodies, leveraging
their reach to raise awareness and educate
their members. An example of this is a
new guide to business fnance, aimed
at smaller businesses, which the Bank
is producing jointly with the Institute
of Chartered Accountants for England
and Wales, with input from a further
sixteen representative bodies and fnance
providers. This guide will be published on
June 26, in print and digital form.
Our website provides information
on the Bank’s programmes and links to
relevant partner organisations. It provides
guidance to business on the types of fnance
available to meet diferent fnance needs,
with a description of their advantages
and disadvantages. The site also links to
further information such as the British
Bankers Association Finance for You tool,
the fnance and support fnder on GOV.
UK, the British Private Equity and Venture
Capital Association online one-stop shop
for venture capital and entrepreneurs, the
appeals process for companies that have had
loans turned down and the fnance advice
schemes ofered by chartered accountants.
In a wider context we have close
relations with, and work alongside, other
important public initiatives and institutions,
such as the Green Investment Bank and the
Technology Strategy Board.
We are also working in conjunction
with policy ofcials in HM Treasury and
BIS to consider developing policy options
for a new referrals system, where banks
which have rejected smaller businesses’
applications for fnance will refer these to
alternative lenders. In conjunction with
planned Government legislation to require
banks to share information on their smaller
business customers with other lenders
through Credit Reference Agencies, this
should drive a signifcant change in the way
that smaller businesses access credit in the
UK, helping to make it easier for alternative
and innovative fnance providers to
compete in the marketplace and to increase
access to fnance for smaller businesses.
In the publication ‘Small Business: GREAT
Ambition’, the Government committed
to review all national business support
products and services to simplify and
enhance business access to and experience
of Government funded support. We
will align our programmes so that the
Government’s support ofer to businesses
is clear and simple to understand. As
part of this, we are committed to provide
smaller businesses with information about
the range of public and private sources
of fnance available to them through the
GREATbusiness.gov.uk website.
British Business Bank Strategic Plan | 39
40 | British Business Bank Strategic Plan
Strategic Purpose Strategic Objectives
Strategic Plan
Financial and operational KPIs Economic Evaluations Strategic KPIs
Achieved by delivering
Fullflled by
achieving
Assessed by
conducting ex post
Tracked using
Q
u
e
s
t
i
o
n
s
a
n
s
w
e
r
e
d
Is it the Bank on track to
achieve its key Strategic
Objectives?
Is each product achieving
its share of the Strategic
Objectives?
Is the funding unlocked
through Business Bank
programmes additional?
How are businesses
supported through Business
Bank programmes growing
compared to other businesses?
What is the impact on Gross
Value Added (GVA) in the
economy as a whole?
Are individual programmes
performing against their
operational and fnancial
KPIs?
Is the Bank on track to deliver
its Business Plan?
Are key planning assumptions
holding true?
ASSESSING OUR
PERFORMANCE
W
e want to be in a position to
understand at all times how
we are performing against our
remit and strategic goal. We
have created a framework which breaks
performance measurement into three areas:
l Strategic Key Performance Indicators
(KPIs) – measuring how we are performing
against our high level, longer term
strategic objectives.
l Economic Indicators – measuring whether
our programmes and products are
providing additional fnance to smaller
businesses as intended, and what the
impact on economic growth is.
l Operational and Financial KPIs – measuring
how each programme/product is doing
against a set of annually defned KPIs.
British Business Bank Strategic Plan | 41
Objective Key Performance Indicators
l To increase the supply of fnance available
to smaller businesses in areas where
markets do not work well
l Up to £10 billion stock of fnance
facilitated through our programmes over 5
years
l Clear demonstration that activities are
focused on market imperfections
l To help create a more diverse fnance
market for smaller businesses with
greater choice of options and providers
l Over 50% of our fnance facilitated
through providers other than the four
largest banks over 5 years
l Clear demonstration that a broad range of
options and providers has been supported
l To help ensure better provision of
information in the market connecting
smaller businesses and fnance providers
l Clear survey evidence from smaller
businesses and fnance providers that
information about fnance options has
improved
l To manage taxpayers’ resources
efciently
l To earn greater than the Government’s
medium term cost of capital over the next
5 years measured by the 5 year gilt rate at
the beginning of the plan
l To demonstrate value for money through
evaluation of programmes
We want to be
in a position to
understand at all
times how we are
performing against
our remit and
strategic goal”
The table below sets out our strategic objectives and the relevant strategic KPIs:
42 | British Business Bank Strategic Plan
In addition, fnancial performance is
monitored in terms of funding drawdowns,
income and capital returns.
We are in the process of developing a
performance management process which
will set the operational and fnancial KPIs
for each product going forward. In order
to develop these, we are analysing the
underlying drivers for operational and
fnancial performance for each product. We
will publish these KPIs together with our
performance against them in our frst full
year business plan, by April 2015.
At a product level, we will also complement
the available fnancial and operational
indicators with robust economic evaluations.
This is already ongoing for existing
programmes and will continue to clearly
establish the extent to which individual
Business Bank programmes have been
successful in addressing market failures.
Each product has its own evaluation plan.
The nature and timing of the evaluations will
be product specifc, but broadly we will seek to
use the following mixed-methods approach:
l Early assessment (1 year in): this is
likely to occur while the product is still
rolling out or has just been rolled out. The
evaluation seeks to understand whether
the product was implemented efciently;
how it is being delivered; whether it is
targeting the right groups; and provides
a description of the customer journey. It
may also provide an early assessment of
the product’s fnance additionality, taking
account of displacement and deadweight.
At this stage there is likely to be limited
data and therefore the evaluation will
most likely rely on information collected
through a small set of in-depth interviews
with participants and delivery partners.
The results are likely to be less robust
and will not provide any estimates
of the impact of the scheme on frm
performance and economic growth.
However, they will provide valuable
information on how to improve the
deliverability of the product.
l Interim evaluation (3-4 years in): this
is likely to be conducted once a product
has been running for some time. A
large scale survey with participants and
providers is typically conducted. This
ofers the opportunity to obtain a better
assessment of fnance additionality and
displacement and deadweight as well as
the impact of the fnance provided on the
business and its performance – turnover,
employment and productivity growth. It
also provides opportunities to conduct
an initial cost beneft analysis and assess
whether the product represents value for
money for the taxpayer.
l Final-evaluation (5-7 years):
quantitative methods are used to provide
the most robust assessment of the
product’s impact. There is likely to be a
long-time series of data and econometric
techniques can be used to assess the
impact of the programme on fnance
additionality and frm growth.
This product-specifc evaluation work
will be complemented by a robust market
analysis and research programme. Areas
of work include:
l Producing a regular review on the
state of the fnance market for smaller
businesses, which will set out our view of
the business fnance markets and where
the gaps are;
l Producing more detailed assessments
of specifc markets to inform any
new products that we may consider
developing further;
l A world-class research programme on
access to fnance as well as work to
benchmark the British Business Bank’s
activities against counterparts in other
OECD countries;
l Using behavioural economics to
investigate and change frms’ attitudes
towards raising fnance;
l Ensuring that data produced on bank
lending to smaller businesses is
supplemented by data on alternative
forms of fnance; and
Our market analysis team will work closely
with academics and industry experts to
ensure all its activities are informed by
cutting-edge economic theory and a deep
understanding of the market.
ASSESSING OUR
PERFORMANCE
Financial and operational KPIs
Taking the Investment Programme we launched in April 2013 as an example, the clearly
articulated programme objectives are to:
• support the development of diverse debt fnance markets available to SMEs
(diversifcation);
• mobilise additional funding from private sector sources in order to support lending to
SMEs (leverage);
• channel fnance to SMEs in an efective, appropriate and responsible manner
(efective deployment); and
• expand the aggregate amount and/or types of debt funding available to SMEs
(additionality).
Applications for funding are evaluated according to a set of nine criteria contained in the
public guidance, relating to key issues such as proposed target market or fund size.
An Investment Advisory Panel was established to provide investment appraisal
expertise for the Investment Programme. The Panel comprises fve external
independent members and two Government members. This ensures strong external
scrutiny of all formal proposals, both before and after due diligence has been conducted.
Each of our programmes has a robust governance process in place, with clear objectives, assessment criteria for funding applications and an
expert investment committee advising on investment decisions.
Risk Processes & Methodologies
W
e have established a strong risk
and compliance team to provide
the Bank’s Board, shareholder
and other key stakeholders with
independent and objective assurance that
the bank operates with integrity, to high
standards and within its risk appetite.
The risk and compliance team will prepare
detailed reports for internal use, as well as
for external regulators and other bodies as
appropriate. It will also provide analytical
support to other areas of the bank, and ensure
good communication channels are in place to
support robust but constructive dialogue.
In the interim period, before the British
Business Bank becomes operational upon
securing State aid approval from the European
Commission, we are reviewing and assessing
the Bank’s risk management systems to be
ready for go-live.
The team has designed a Risk
Management Framework, which is a
collection of tools that support the British
Business Bank in identifying, assessing,
monitoring and controlling the risks it faces.
The framework informs development
of the risk infrastructure and provides a
sound basis for more informed risk-based
decision-making across the business areas,
acknowledging that we have a public policy
agenda – to ensure that fnance markets for
smaller businesses work efectively – and
thus not a specifc commercial strategy and
risk appetite.
Risk Management Framework
Risk Strategy & Appetite
Risk Governance
Risk Data & IT System
Risk Management Skill, Resources & Culture
Qualitative
Quantitative
Stress testing
Change
Identify
Control
Assess
Monitor
Aggregation
Reporting
V
a
l
i
d
a
t
i
o
n
The team has designed
a Risk Management
Framework, which is a
collection of tools that
support the British
Business Bank in
identifying, assessing,
monitoring and
controlling the risks it
faces ”
RISK
MANAGEMENT
British Business Bank Strategic Plan | 43
44 | British Business Bank Strategic Plan
FINANCIAL
SUMMARY
W
e have a total Government
funding allocation of close to
£3.9bn for our programmes,
for deployment over a number
of years. Some of this funding comes from
past spending review commitments to
existing programmes which are moving
into the Bank, and some is new funding for
innovative Business Bank programmes.
All existing Government-supported
national access to fnance programmes
(with the exception of export fnance
and grant programmes) will be managed
by the British Business Bank, including
investments already made and funding
commitments for future investments
under these programmes. For State aid and
regulatory reasons, not all programmes may
transfer to the balance sheet of the British
Business Bank, but will still be managed by
the Bank on behalf of BIS where they are
not transferred.
Through the 2012 and 2013 Autumn
Statements, we have obtained a further
£1.25bn of Government funding for our
new programmes, which forms part of the
£3.9 billion total Government allocation for
the Bank. Of this, we have already allocated
£300 million to the Investment Programme,
£50 million to the Angel CoFund and £125
million to the VC Catalyst Fund. This leaves
£775 million for deployment to our other
new planned programmes, including the
Wholesale Guarantees and the Asset
Finance Funding Vehicle.
All our programmes are longer term
programmes, so that we can efectively
work with our private sector delivery
partners. Therefore, funding allocations
for a programme are often distributed
across several years once made, and
are particularly long for venture capital
programmes.
Notes: The table above presents the total amount of funding available to programmes managed by the Bank,
over a number of years. For some programmes, all the funding available has already been drawn down. Some
of the funding above can be switched between programmes. In principle, funding can be recycled, subject
to future Spending Review decisions. Out of the Angel Co-Fund’s £100m funding, only £50m has come from
Business Bank programmes, with the remainder coming from the Regional Growth Fund.
Programme Public funding
ALLOCATED £m
Venture Capital Solutions
UK High Technology Fund 20
Regional Venture Capital Fund 74
Early Growth Fund 32
Bridges Ventures Fund 20
Enterprise Capital Fund 338
Aspire Fund 13
Capital for Enterprise Fund 50
UK Innovation Investment Fund 150
Angel Co-Investment Fund 100
VC Catalyst Fund 125
971
Lending Solutions
Start-Up Loans 322
Enterprise Finance Guarantee 553
875
Investment Programme
BFP (Small Business Tranche) 87
BFP Mid-cap Tranche 863
Investment Programme 300
1,250
Future programmes inc. Wholesale Programmes 775
Total 3,872
British Business Bank initial funding allocation, £m
British Business Bank Strategic Plan | 45
Where possible, we match our Government funding with
private sector funding, in order to generate a more signifcant
impact, and in order to catalyse the market rather than
replace it. Often, we invest our funding on the same terms
as private investors, which ensures that our investments are
made on a transparent and commercial basis. The proportion
of private sector match funding varies between types of
programmes, and so the average amount of private sector
funding per pound of public funding depends on the portfolio
mix of programmes. We estimate that over the next fve
years, we will attract £2 to £3 of private sector investment
per £1 of Business Bank funding.
Currently, the amount of fnance supporting businesses
through our programmes is £1.5 billion, not including the mid-
cap portion of the Business Finance Partnership, which will
transfer into the Bank in time for it becoming fully operational.
The graph below illustrates how we might deploy the funding allocations by programme area by 2018. This 2018 fgure is lower than £3.9
billion because some funding is expected to be drawn down after 2018, and the graph below measures Government exposure at a point in
time, whereas the total funding allocation of £3.9bn looks across the lifetime of programmes.
Notes: Illustrates expected cash
drawdowns for programmes except
the Enterprise Finance Guarantee
and the Wholesale Guarantees. For
the EFG, the expected net loss has
been included based on the stock
of lending outstanding at the time.
For Wholesale Guarantees, the
capital that will be held against the
Guarantees has been included.
The 2013/14 fgure includes the
mid-cap tranche of the Business
Finance Partnership, which is due
to transfer to the Business Bank
during 2014/15.
0
500
1,000
1,500
2,000
2,500
3,000
Capital returns for reinvestment
Venture Capital
Lending Solutions
Investment Programme
Wholesale Solutions
2013/2014 2014/2015 2015/2016 2016/2017 2017/2018
HMG Resources
46 | British Business Bank Strategic Plan
One of our strategic goals is to unlock £10bn of fnance by 2018,
combining public and private sector funding.
The graph below gives an illustration of how we might achieve this.
Of course, there is signifcant uncertainty in predicting our market
impact, particularly in later years:
l Once we commit funding to delivery partners, they typically have
a number of years to draw down the awarded funding, in line
with standard private sector process. Therefore, we do not have
control over the precise timing of drawdowns once we have made a
commitment.
l In addition, each year, through a report on our view of the state of
the market, we will update where we see gaps in the market, and will
allocate resources to the mix of products that best addresses the market
gaps. This means that whilst we are more certain of what our product
mix will be in the next two years, there is signifcant uncertainty beyond
this. For each product, the amount of private sector capital per public £ is
diferent, and therefore also the market impact.
Illustration of market impact by 2018, private and public resources
0
2,000
4,000
6,000
8,000
10,000
12,000
Capital returns for reinvestment
Venture Capital
Lending Solutions
Investment Programme
Wholesale Solutions
Note: Leverage ratios for each programme have been estimated using programme guidance and existing investments.
The ‘Stock’ is the amount of fnance actively supporting businesses at the end of each year, so the investments minus
any capital returned.
The 2013/14 fgure includes the mid-cap tranche of the Business Finance Partnership, which is due to transfer to the
Business Bank during 2014/15.
2013/2014 2014/2015 2015/2016 2016/2017 2017/2018
SME Finance Stock
British Business Bank Strategic Plan | 47
STRATEGIC
PLAN
JUNE 2014
©Crown copyright 2014
You may use this information (not including logos) free of charge and in any format or medium, under the
terms of the Open Government License. Visit www.nationalarchives.gov.uk/doc/open-government-license,
write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email:
[email protected].
This publication available from www.gov.uk/bis and www.british-business-bank.co.uk
Any enquiries relating to this publication should be sent to:
Department for Business, Innovation and Skills
1 Victoria Street
London SW1H 0ET
Tel: 020 7215 5000
BIS/14/918
doc_364079763.pdf
The British Business Bank is already making a real diff erence, with over 30,000 smaller businesses benefi tting from its programmes.
STRATEGIC
PLAN
JUNE 2014
PERFORMANCE
HIGHLIGHTS
£782 m
of new lending and investment
was generated by British
Business Bank programmes in
fnancial year 2013/14 – more
than double the level supported
in 2012/13.
1.56 bn
of total lending and
investment in the
market, supporting UK
businesses.
61%
of this was supported
through new, emerging or
smaller fnance providers;
in total we work with more
than 80 partners.
+30,000
businesses
were beneftting from fnance
through our programmes as of
31st March 2014.
East Midlands 7%
East of England 9%
London 19%
North East 4%
North West 14%
Northern Ireland 1%
Scotland 6%
South East 13%
South West 8%
Wales 5%
West Midlands 7%
Yorkshire & Humber 7%
We operate across the UK
Wholesale and Retail Trade
Accommodation and
Food Service
Manufacturing
Construction
Science and Technology
Other
21%
11%
10%
10%
10%
38%
2 | British Business Bank Strategic Plan
The British Business Bank is focused on unlocking fnance
for smaller businesses: the average size of loans through
our programmes is £68,000 and the typical equity
investment is £600,000.
We operate across all sectors,
but the top five supported are:
TABLE OF
CONTENTS
40 43 44
Assessing our
performance
Risk
Management
Financial
Summary
02 04 05
Performance
highlights
Foreword by the
Secretary of State
for Business,
Innovation and Skills
Chairman’s
statement
10 12 19
The story
so far
Who
we are
Why we
are needed
26 27 39
Market
Segmentation Our Programmes
Wider activity
to improve
the market
06 07 08 What we do
How we
operate Our Values
22 24 25
Our
objectives
How we
are run
How we
allocate our
resources
British Business Bank Strategic Plan | 3
4 | British Business Bank Brochure
I
am very pleased to see how far the es-
tablishment of the British Business Bank
has progressed. The need for an institu-
tion to ensure that markets for long term
business fnance work well was identifed
by John Maynard Keynes in the 1930s. For
many years, ICFC and later 3i, performed
this role. But for many decades, the UK has
lacked such an important body to support
medium scale and smaller companies.
When I announced my intention to
create the British Business Bank, I outlined
that Government would be building for the
long-term. After all, this is a key initiative
in our Industrial Strategy. We cannot fx
business fnance markets overnight - the
legacy of the banking crisis and the many
years preceding it have left us with a market
which is deeply fawed.
Lending to smaller businesses is still
too concentrated, and lenders have been
incentivised to cross-sell products rather than
support companies in their local communities.
Thankfully things are changing. The British
Business Bank is already playing a signifcant
role in accelerating this change. This plan
shows how the British Business Bank is
looking to the future, with clear, measurable
objectives and solutions to address the issues
afecting smaller businesses.
The British Business Bank is already
making a real diference, with over 30,000
smaller businesses beneftting from its
programmes. And there are exciting plans for
further action to boost long-term fnance and
encourage diversity of supply.
I have faith that the Board and executive of
the British Business Bank have the ambition,
ability and resources to make a real diference
to long-term economic growth in the UK.
Vince Cable
Secretary of State
Department for Business Innovation
and Skills
FOREWORD
BY THE SECRETARY OF
STATE FOR BUSINESS
INNOVATION AND SKILLS
4 | British Business Bank Strategic Plan
The British Business
Bank is already making
a real diference, with
over 30,000 smaller
businesses beneftting
from its programmes”
British Business Bank Strategic Plan | 5
H
elping smaller businesses access the
fnance they need to grow is vital to
our continuing economic recovery
and sustainable growth thereafter.
For too long, smaller businesses in the UK
have found their options constrained when
seeking funding, due to overly concentrated,
inef cient fnance markets.
That’s why the Government is setting up
the British Business Bank: to make fnance
markets for smaller businesses work better,
enabling the sector to prosper, grow and
build economic activity.
The setting up of the British Business
Bank has made major progress in the last
year. We’ve built a strong management
team, incorporating expertise from the
private and public sectors, and have
appointed a full Board of Directors to
advise and oversee the Bank’s activities
going forward. Our programmes are already
delivering signifcant results – a total of
£782 million reached smaller businesses
in the last fscal year alone. We’re also
playing an important role in widening
the fnance options available to small
companies by funding innovative providers
of fnance, such as peer-to-peer lenders,
and will shortly start to guarantee some
of the lending of smaller challenger banks.
Currently we are working with over 80
diferent suppliers of fnance.
But there’s still much more to do. This
strategic plan lays out our vision for the
Bank: setting out the market failures we are
targeting and the critical groups of smaller
businesses we are aiming to support,
explaining the Bank’s objectives, structure
and values, and the standards we will
assess our performance against.
We are fully focussed in making this new
organisation a success, and I am confdent
that we will play a critical role in improving
the fnancing options available to small
businesses in the UK, helping to make a real
diference to their success and growth in
the wider economy.
Ron Emerson
Chairman
British Business Bank
CHAIRMAN’S
STATEMENT
Our programmes are already
delivering signifcant results –
a total of £782 million reached
smaller businesses in the last
fscal year alone”
6 | British Business Bank Brochure
WHAT
WE
DO
l Our goal is to change the structure of fnance markets for smaller
businesses, so these markets work more efectively and dynamically.
This will help businesses prosper and build economic activity in the UK.
l That’s why
• We will increase the supply of fnance available to smaller businesses
where markets don’t work well.
• We will create a more diverse and vibrant fnance market for smaller
businesses, with a greater choice of options and providers.
• We will build confdence in the market by increasing smaller
businesses’ understanding of the options available to them.
• We will achieve this whilst managing taxpayer resources efciently
and within a robust risk management framework.
l The British Business Bank brings expertise and Government money to
the smaller business fnance markets.
l Understanding markets and smaller businesses’ fnance needs allows
us to design programmes to make fnance markets work better.
l Investing alongside private sector investors maximises our impact and
allows us to reach the full range of fnance providers such as banks,
leasing companies, venture capital funds and web-based platforms.
l We do not lend to or invest directly in smaller businesses, with the
exception of the Aspire Fund.
l In addition to fnance, we also use guarantees to share risk with the
private sector and so create stronger incentives for lenders to extend
credit to smaller or growing companies.
l Our route to market is through established or newly emerging fnance
market providers. In total we work through more than 80 fnance
partners in the market.
l We will unlock up to £10 billion of new fnance and bring greater
choice and information on fnance options to smaller businesses.
l Our programmes are designed to bring benefts to smaller businesses
that are start-ups, high growth, or simply viable but underfunded.
l We are creating the opportunity for smaller businesses to invest and
grow, creating additional jobs and economic activity.
6 | British Business Bank Strategic Plan
The British Business Bank programme is
currently run directly by the Department
for Business, Innovation and Skills and
is not authorised or regulated by the
Financial Conduct Authority. Once HM
Government has received European
Commission State aid clearance, which is
expected later in 2014, programmes will
be transferred to the British Business Bank
plc, which will operate as a Government-
owned fnancial institution. Any references
to the British Business Bank in this
document refer to the British Business
Bank programme within the Department
for Business, Innovation and Skills.
HOW WE OPERATE
British Business Bank Strategic Plan | 7
Private
Sector
Money
Private
Sector
Money
Resulting in increased business
investment, growth and jobs
Working with fnance market providers
Banks
Venture
Capital
funds
Asset
Finance
providers
Business
Angels
Start-up
funding
providers
Peer-
to-peer
lenders
Supply-
chain fnance
providers
Trade
credit
providers
Debt
funds
More Finance
up to £10bn
Greater Choice
of product and
provider
Better Info
about fnance
options
Start-ups/
early-stage
businesses
Growing
businesses
Other underfunded,
viable businesses
Expertise
Designing solutions to make
fnance markets for smaller
businesses work better
Money
Over £3bn of public
funding commitments
8 | British Business Bank Strategic Plan
OUR VALUES
We have been created to enable change in the market.
Our key values are:
INTEGRITY
CONNECTING
COMMERCIALLY
MINDED
Acting with a shared sense of purpose, an abiding duty of
care, and serving our market, stakeholders and employees
with fairness, honesty and transparency.
Collaborating across the organisation, engaging
with stakeholders, Government, and markets to better
understand the challenges faced by smaller businesses.
ENABL ING
British Business Bank Strategic Plan | 9
IMPROVING
DELIVERING
COMMERCIALLY
MINDED
Exercising good commercial judgement to
meet the needs of our market while also staying
focused on the need to drive economic beneft.
Commitment to delivering a professional, quality
service to all our stakeholders and colleagues,
whilst employing taxpayer resources responsibly
to provide solutions.
Challenging and innovating to create efective solutions that
meet the objectives of our stakeholders and ensuring that
fnance markets for smaller businesses work efectively.
ENABL ING
10 | British Business Bank Strategic Plan
SET UP OF THE BRITISH
BUSINESS BANK
HIGHLIGHTS
September 2012
Vince Cable announces
intention to create
the British Business
Bank, with £1bn of
Government funding
2012 2013
October 2013
Ron Emerson
appointed Chair
April 2013
£300m
Investment
Programme launched
March 2013
VC Catalyst Fund
announced at
Budget 2013
January 2013
£15m
committed to Amadeus
IV Early Stage Fund
March 2013
First Strategy
Update published
April 2013
Enterprise Finance
Guarantee Trade
Credit Pilot launched
July 2013
Angel Co-Fund
extended across UK
July 2013
£7.8m
committed to
Dawn Capital II
October 2013
£25m
commited to Episode I
November 2013
£30m
commited to Praesidian
Capital Europe and
£15m
to BMS Finance
British Business Bank Strategic Plan | 11
SET UP OF THE BRITISH
BUSINESS BANK
HIGHLIGHTS
February 2014
Start Up Loans
programme is made
available across the UK
February 2014
£40m
commited to
Funding Circle
April 2014
£20m
commited to Sussex
Place Ventures
June 2014
Full Board appointed
31 March 2014
£782m
of fnance facilitated by
British Business Bank
reaches smaller businesses
March 2014
Wholesales Guarantees
programme launched
April 2014
Our main programme for
Venture Capital reformed
and made more fexible
2014
December 2013
Keith Morgan
appointed CEO
December 2013
Treasury announces
£250m
of additional funding for
new programmes
12 | British Business Bank Strategic Plan
WHO
WE ARE
THE BOARD
Ron Emerson
Non-Executive Chair
Ron has held a number of senior
management positions with Bank of
America, Nomura Bank International and
Standard Chartered Bank, where he was
a member of the group management
committee and Group Head of Corporate
Banking. Since 1996 he has divided his
time between non-executive directorships,
business advisory work and as an active
member of the Faculty of Management
Studies at Oxford University, where he is an
Associate Fellow.
Christina McComb
Senior Independent Director
Christina has held a range of senior private
and public sector roles and has a successful
track record in private equity and venture
capital investment as well as advising small
and medium-sized businesses. Christina is
a former director of 3i plc and is currently a
Senior Independent Director at Standard Life
European Private Equity Trust and a non-
executive director of several other investment
companies and private companies.
A full Board of non-executive
Directors has been appointed
to advise the creation of British
Business Bank and will be the
permanent Board once the
Bank becomes an operationally
independent organisation.
12 | British Business Bank Strategic Plan
Jonathan Britton
Non-Executive Director –
Audit Committee Chair
Jonathan has 35 years of experience in
banking, spanning corporate, smaller
businesses and investment banking
businesses. Jonathan is currently a Non-
Executive Director of ICICI Bank UK Limited,
and also chairs its Audit Committee. Since
2006, he has also been a Director of Sparks,
a leading children’s medical research charity,
becoming Chairman in 2012.
British Business Bank Strategic Plan | 13
Keith Morgan
CEO
Keith has been leading the planning and
establishment of the British Business Bank
since January 2013. Prior to this, Keith was
formerly a Director and Head of wholly-owned
investments at UKFI, joining in 2009 to
manage the UK Government’s shareholdings
in Bradford & Bingley, Northern Rock and
Northern Rock Asset Management.
Keith joined UKFI from Banco Santander
where he was a Director of Sovereign Bancorp
in the US, focusing on Bank’s retail and SME
strategy and the integration of Sovereign
into Santander. He was previously Director of
Strategy & Planning at Abbey National and
a member of the Executive Committee, and
also served as Chairman of Santander’s Asset
Management and Credit Card businesses in
the UK. Before joining Abbey in 2004, Keith
spent 18 years at L.E.K. Consulting, where he
was a partner specialising in fnancial services.
Colin Glass
Non-Executive Director
Colin is a Chartered Accountant with his
own Practice, Winburn Glass Norfolk (‘WGN’)
which he founded, with two partners, in
1975. He is also a non-executive director of
several companies, all of which are quoted
on AIM. Colin has always been passionately
interested in assisting small businesses
develop to their full potential, and has
been involved in a signifcant number of
diverse businesses. Colin was awarded
the Star in Practice Award in 2006 from
the West Yorkshire Society of Chartered
Accountants, and also was awarded
Business Advisor of the Year in 2007 and
Non-Executive Director of the year in 2008
by the Institute of Directors Yorkshire and
Humber. In January 2011 he was awarded
Non-Executive Director of the Year in the
Grant Thornton sponsored Quoted Company
Awards for his work with AIM-quoted
smaller businesses.
14 | British Business Bank Brochure
Caroline Green
Non-Executive Director
Caroline is Finance Director of the VC-backed
engineering group Arc Specialist Engineering
Limited and previously spent eight years in
private equity, initially at 3i plc. She started
her career at Xerox Corp where she spent
nine years in a variety of roles including
supply chain, manufacturing and fnance.
Caroline is also a non-executive director and
chair of audit committee for Protection Group
International Limited, a fast growth risk
mitigation and security company.
Teresa Graham
Non-Executive Director
Having worked alongside smaller frms in the
public and private sectors for many years,
Teresa now works independently providing
strategic advice to ambitious, growing
businesses and liberating these businesses
from unnecessary regulation. She holds a
number of non-executive directorships and
has a variety of mentoring and advisory roles
in other growth businesses.
Teresa was Deputy Chair of the
Government’s Better Regulation
Commission having worked for twenty years
in the deregulation and better regulation
arena. She is Chairman of the Administrative
Burdens Advisory Board of HMRC and a
member of the Treasury’s Ofce for Tax
Simplifcation, and has recently returned
from number 11 Downing Street where she
was honoured for her work with HMRC.
14 | British Business Bank Strategic Plan
WHO WE ARE
THE BOARD
British Business Bank Strategic Plan | 15
Ceri Smith
Shareholder Representative
Director
Ceri heads the Business Bank and Public
Data Group team in the Government’s
Shareholder Executive, and is responsible
for the successful delivery of the British
Business Bank. He has held a number of
senior positions in the Department for
Business, Innovation and Skills advising
the Secretary of State on a range of issues
including business fnance, industrial
strategy, infrastructure and the UK’s
employment law framework.
Patrick Magee
Shareholder Representative
Director
Patrick joined the Government’s Shareholder
Executive in June 2012. He has been involved
in assisting with the establishment of The
Green Deal Finance Company, the set-up and
governance of the British Business Bank as
well as work on a range of the companies in
the Shareholder Executive portfolio.
Before joining the Shareholder
Executive, Patrick was a Managing Director
of corporate fnance at JP Morgan Cazenove,
having worked at its predecessor frms for
almost eighteen years.
Maria Turner
Non Executive Director –
Risk Committee Chair
Maria has over 27 years of risk
management experience, managing risk
in wholesale, retail, commercial, and in
investment banking businesses.
Maria is currently Chief Risk Of cer at
Mizuho International Plc bank in London.
She is a senior Managing Director and
a member of the company’s Executive
Committee.
16 | British Business Bank Strategic Plan
Our senior management team comprises
expertise from the public and private
sectors, and includes specialists in
product development, fnance and risk
management.
16 | British Business Bank Strategic Plan
Strategy
and
Markets
Finance
Venture
Capital
Solutions
Lending
Solutions
WHO
WE ARE
THE EXECUTIVE
We are organised into eight
teams, four of which provide
central functions and four of
which are market-facing:
Ken Cooper
Managing Director, Venture
Capital Solutions
Heading up our Venture Capital Solutions
team, Ken is responsible for the design and
delivery of a range of programmes that
support the fow of venture capital based
investment into smaller businesses. Ken has
a wealth of experience in venture capital
and access to fnance. As part of the senior
management team at Capital for Enterprise,
he led on the design and management
of a range of Government-backed equity
support programmes.
Prior to that, Ken spent six years with the
Government’s Small Business Service where
he was responsible for fnance policy for
smaller businesses. Ken is a Director of the
UK Business Angels Association.
Shanika Amarasekara
General Counsel &
Company Secretary
Shanika is the General Counsel & Company
Secretary at the British Business Bank. In
this role she is responsible for ensuring
that the legal interests of the bank and its
stakeholders are protected and ensuring
that the governance aspects of the
institution function smoothly.
Shanika joined the bank in June 2014.
Prior to this she worked as General Counsel
at an institution established by a number of
central banks to promote fnancial stability
and economic development. Shanika has
previously worked at RBS as a Director in
their structured fnance team and prior to
this was a senior associate in the capital
markets team at Allen & Overy.
Risk &
Compliance
General
Counsel/
central
functions
Investment
Programme/
British
Business
Bank
Investments
Wholesale
Solutions
British Business Bank Strategic Plan | 17
Reinald de Monchy
Managing Director, Wholesale
Solutions
As Managing Director of the Wholesale
Solutions team, Reinald is responsible for
the design and delivery of funding and
capital programmes to help increase the
fow of fnance to smaller businesses.
Prior to joining the Business Bank,
Reinald worked for over 12 years
securitising a wide variety of asset classes
including loans to smaller businesses,
corporates, private fnance initiatives,
leveraged fnance, registered social
landlords and emerging markets borrowers.
Between 2005 and 2013, he worked for
Lloyds Bank as Head of SME and Corporate
Loan Securitisation. Prior to joining Lloyds,
Reinald worked for MeesPierson (later Fortis
Bank) and for Rabobank.
Judith Ozcan
Managing Director,
Lending Solutions
As head of the Lending Solutions team,
Judith manages a range of programmes that
support the fow of debt-based fnance into
smaller businesses, helping them to prosper,
grow and build UK economic activity. Judith
has worked in a variety of senior fnance
roles in Government and the private sector.
Judith was previously a Director of Real
Estate at HBOS, before which she held a
number of roles in corporate banking.
Mark Gray
Managing Director, Risk
and Compliance
Mark heads up our Risk and Compliance
department, providing the Board,
shareholder and key stakeholders with
assurance that the Bank is operating with
integrity, to high standards and within its
risk appetite.
Mark joined the British Business Bank in
November 2013. He was previously Chief
Risk Ofcer at Shawbrook for two years.
He spent ten years at General Motors
Acceptance Corporation (GMAC), as Chief
Risk Ofcer in two diferent international
divisions, and also worked as Director of
Structured Finance. Previously Mark worked
in Investment Banking for Banque Nationale
de Paris, Swiss Bank Corporation, Credit
Suisse First Boston and Morgan Stanley.
18 | British Business Bank Brochure 18 | British Business Bank Strategic Plan
WHO WE ARE
THE EXECUTIVE
Andrew van der Lem
Managing Director, Strategy
& Markets
As Managing Director of Strategy & Markets,
Andrew is responsible for setting the Bank’s
strategy going forward, through business
planning, product development, market
analysis and programme evaluation.
Andrew has worked on the Business Bank
project within the Department for Business,
Innovation and Skills from its inception, and
was previously responsible for access to
fnance policy for smaller businesses.
An economist by background, Andrew
has worked on a range of policy issues in
Government, including competition policy,
regulatory reform, intellectual property rights
and trade policy. He spent four years from
2002 to 2006 seconded to the Foreign and
Commonwealth Ofce representing the UK in
EU negotiations, and has also worked in the
Cabinet Ofce and the European Commission.
Peter Wilson
Managing Director, Investment
Programme
Peter is Managing Director of the
Investment Programme, which addresses
long-standing gaps in the fnance market
for smaller business and promotes greater
choice in their supply of lending.
Before joining the British Business Bank,
Peter’s previous career was spent largely
in private equity. As Partner and Managing
Director at Warburg Pincus, he was
responsible for European Financial Services
investments. Prior to joining Warburg
Pincus, Peter spent nine years at Electra
Partners, where he was a founder Director
of Electra Partners Europe. Before starting
his investment career, Peter spent fve years
with the Boston Consulting Group.
Neil Wood
Interim Chief Financial Ofcer
and Managing Director, Central
Services
Neil is responsible for the development
of the Bank’s fnancial management and
reporting strategy, capability, framework
and systems and processes. Neil joined
the Bank in May 2014 on secondment
from Deloitte where he is a partner in the
programme management practice. Neil
has over seventeen years of experience
in audit. From 2005 until 2013 he was
seconded to The London Organising
Committee of the Olympic Games and
Paralympic Games Ltd (LOCOG) as its Chief
Financial Ofcer, and was at the heart of
the fnancing, planning and delivery of the
Olympic and Paralympic Games.
British Business Bank Strategic Plan | 19
Smaller businesses are a crucial part of the
UK economy. At the start of 2013, there were
around 4.9 million smaller businesses in the
UK, employing over 14 million people, and
contributing 48% of the economy’s private
sector turnover. (There is no standardised
defnition of a smaller business, but we mean
companies with fewer than 250 employees.
For some programmes, we also often apply
an EU defnition which comprises businesses
with annual turnover of £43 million or less.)
Well-functioning markets for fnance
ensure a dynamic small business sector,
producing new and improved goods and
services and so raising productivity and the
UK’s international competitiveness. One of the
Government’s priorities is to rebalance the UK
economy away from Government spending
and consumption towards more business
investment and sustainable growth.
However, the UK has the lowest level of
business investment of all the OECD countries.
The ratio of UK business investment to GDP
is 8% compared to over 10% for the USA,
Germany and France (OECD 2011 fgures
on Private Non-Residential Gross Fixed
Capital Formation). Although the economy is
expanding and employment rates are rising,
business investment remains relatively
static, due in part to business uncertainty
over future economic conditions and funding
constraints afecting smaller businesses.
Finance is required to increase investment
and to help companies grow. The Federation
for Small Businesses’ Voice of Small Business
Index (Quarter 1 2014) shows that smaller
businesses performed strongly in 2013 and
the frst quarter of 2014 – with a positive
net balance in the number of businesses
reporting growth in revenue. Expectations
amongst businesses on the future outlook
of the economy also remained strong with
26.6% of businesses reporting that they
intended to increase investment in the
next 12 months, the highest level since the
survey began. Yet despite these encouraging
signs the stock of bank lending for smaller
businesses continues to decline.
WHY WE ARE
NEEDED
Smaller businesses cannot
always obtain the fnance
they need
Smaller businesses are crucial to economic growth
M
a
r
2
0
0
8
M
a
r
2
0
0
9
M
a
r
2
0
1
0
M
a
r
2
0
1
1
M
a
r
2
0
1
2
M
a
r
2
0
1
3
J
u
l
2
0
0
8
J
u
l
2
0
0
9
J
u
l
2
0
1
0
J
u
l
2
0
1
1
J
u
l
2
0
1
2
J
u
l
2
0
1
3
N
o
v
2
0
0
8
N
o
v
2
0
0
9
N
o
v
2
0
1
0
N
o
v
2
0
1
1
N
o
v
2
0
1
2
N
o
v
2
0
1
3
P
e
r
c
e
n
t
a
g
e
c
h
a
n
g
e
s
o
n
a
y
e
a
r
e
a
r
l
i
e
r
-10.0
5.0
-5.0
10.0
0.0
15.0
20.0
BIS Bank of England BBA
Rate of decline in the stock of SME lending
Source: Bank of
England Trends in
Lending, April 2014
20 | British Business Bank Strategic Plan
Demand for fnance from smaller businesses also remains subdued. Only 16% sought or renewed external funding in Quarter 1 2014, a
decrease from levels seen in the preceding years.
Success rates for smaller businesses seeking external fnance also continue to deteriorate. In the frst quarter of 2011, around 70% of
smaller businesses seeking fnance were able to obtain funding but this has dropped to 65% in the same period of 2013.
WHY WE ARE NEEDED
Small frms who wanted to apply but didn’t 5% 273,000 small frms
Small frms that applied for new fnance, or renewed
facilities, including automatic renewals
16% 728,000 small frms
Did not apply, but did not feel anything stopped them 78% 3.5 million small frms
Proportion of smaller businesses seeking fnance in last 12 months
Success rates for smaller business seeking bank fnance
Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13
Offered what
wanted or
took facility
after issues
70% 72% 69% 70% 67% 68% 68% 75% 64% 60% 65% 65%
Got funding
elsewhere
8% 7% 4% 6% 4% 3% 6% 4% 7% 6% 4% 4%
No facility 22% 21% 27% 24% 28% 29% 26% 21% 30% 34% 31% 31%
Source: BDRC SME Finance Monitor, Q1 2014
Source: BDRC SME Finance Monitor, Q1 2014
British Business Bank Strategic Plan | 21
At present the largest four banks account
for over 80% of UK smaller businesses’
main banking relationships. Whilst the
Government is working hard to improve
competition in the banking sector, there is
a range of challenges faced by new banks
trying to enter the market. These include
regulatory barriers, low rates of switching
by consumers and reduced access to
information to assess creditworthiness of
lending applicants compared to existing
fnance providers. This concentration and
the challenges to enter the banking market
results in credit rationing, a lack of product
diversity and higher costs. In addition, when
large incumbent banks pull back from the
market, smaller business borrowers are
often left without sufcient alternative
sources of fnance.
The high concentration of the UK
banking market also means that smaller
businesses are less aware of alternative
fnancing options outside of the largest
banks, including challenger banks and
alternative fnance providers. Businesses
may also lack information on how to present
themselves as viable propositions, resulting
in some potentially viable businesses not
getting the fnance they need.
Lending to smaller businesses is
particularly capital intensive, and hence
less proftable for banks compared to other
types of lending. This is refected in higher
rejection rates for smaller businesses - 53%
of sole trader businesses who applied for
a loan were declined funding, compared to
9% of businesses with 50-249 employees
(from Quarter 3 2012 to Quarter 4 2013).
In the current economic climate, banks are
likely to be capital-constrained due to post-
crisis deleveraging and international and
national banking regulations designed to
stabilise the banking sector against
future volatility.
There are also structural market
failures due to imperfect information.
Before advancing credit, lenders must
assess borrowers’ ability to repay based
on assessing the company’s performance
and future prospects. Despite advances in
credit scoring techniques, it can be costly
for banks to assess small loans to smaller
companies. Many lenders therefore rely
on evidence of past track record, and
availability of collateral, which prevents
some viable smaller and newer companies
that lack long track record and security from
raising bank fnance.
These types of issues also extend to
equity markets. It has long been recognised
that there is an ‘equity gap’ in the provision
of smaller amounts of equity fnance. The
equity gap is currently estimated to afect
equity deals of up to £2-5m. This is because
assessing the quality of proposals, and
judging the associated risks of investing in
young businesses is difcult. The cost of
undertaking due diligence generally does
not change by size of investment and so can
often be disproportionately high for smaller
investments– sometimes accounting for
10% or more of the investment. This has
resulted in a structural gap in the market
where investors and fund managers focus
on fewer, larger investments in more
established (and therefore lower risk)
businesses at the expense of early stage
venture capital. There are also cyclical
factors currently afecting the Venture
Capital market, with low levels of fund
raising for new venture capital funds
compared to before the recession, as
investors look for lower risk and more
liquid assets.
Structural issues in the market for business fnance
53%
OF BUSINESSES WITH
0-49 EMPLOYEES
who applied for a
loan were declined
l Our goal is to change the structure of
fnance markets for smaller businesses,
so these markets work more efectively
and dynamically. This will help
businesses prosper and build economic
activity in the UK.
l That’s why
• We will increase the supply of fnance
available to smaller businesses where
markets don’t work well.
• We will create a more diverse and
vibrant fnance market for smaller
businesses, with a greater choice of
options and providers.
• We will build confdence in the market
by increasing smaller businesses’
understanding of the options available
to them.
• We will achieve this whilst managing
taxpayer resources ef ciently and
within a robust risk management
framework.
Smaller businesses will often need to
seek external fnance as they look to grow
and invest. Diferent types of businesses will
require diferent forms of fnance at particular
stages in their development; there is no one-
size-fts-all solution. Early stage, fast-growing
businesses may require equity fnance, while
companies with more predictable cash fows
could be better suited to debt-based fnance.
Having knowledge of, and access to, a full
range of fnance options is critical.
OUR
OBJECTIVES
Equity Finance Debt Finance
Seed
Finance
Angel
Finance
Equity
Crowdfunding
Venture
Capital
Private
Equity
IPO/Public
Ofering
Start-up
Loan
Overdraft Loan
Peer to peer
lending
Asset-based
Finance
Leasing
and Hire
Purchase
Export
Finance
Trade
Finance
Mezzanine
Pre-trading
l
Pre-proft
l l
Proftable growing business
l l
Established and steadily growing
l l
Established stable business
l
Launching new product/service/
brand
l
Making acquisitions
l l l
Expanding into new territories
l l l
Investing in new facilities
l l
Looking to refnance
l
The British Business Bank is active across
a broad spectrum of the fnance market
for smaller businesses and continually
evaluates where it should commit future
funding to meet its strategic goal.
We are an evidence-based organisation,
and are putting considerable resources
into data-gathering and analysis in order
to properly inform our resource allocation
process. We are uniquely placed to
understand business fnance markets
for smaller frms. Later in 2014 we will
publish a detailed “State of the Market
Report” with insight into latest market
developments, the characteristics of
diferent sub-markets, such as Fintech and
alternative forms of fnance, as well as the
linkages with macroeconomics.
We will publish all our research as well
as all our economic evaluations of our
programmes.
22 | British Business Bank Strategic Plan
Our programmes are designed to enhance
smaller businesses’ access to the full range
of options. We focus on areas where the
markets don’t work well and where we can
catalyse greater competition and diversity in
fnance provision.
The following table shows the various
options available to diferent business
stages and where the Bank is currently
active.
Equity Finance Debt Finance
Seed
Finance
Angel
Finance
Equity
Crowdfunding
Venture
Capital
Private
Equity
IPO/Public
Ofering
Start-up
Loan
Overdraft Loan
Peer to peer
lending
Asset-based
Finance
Leasing
and Hire
Purchase
Export
Finance
Trade
Finance
Mezzanine
Pre-trading
l
Pre-proft
l l
Proftable growing business
l l
Established and steadily growing
l l
Established stable business
l
Launching new product/service/
brand
l
Making acquisitions
l l l
Expanding into new territories
l l l
Investing in new facilities
l l
Looking to refnance
l
British Business Bank Strategic Plan | 23
Business Bank is active in this area
Business Bank is planning to become active in this area
Products available in the market
l
T
he British Business Bank is a 100%
Government-owned institution
which will operate to fulfl a public
policy objective. Unlike most banks,
our impact is not measured in terms of
profts generated but rather by the beneft of
increased economic activity it creates.
We are doing this to ensure that there
is a vibrant, diverse and sustainable private
sector market for small business fnance.
We are not a traditional ‘bank’ which
accepts deposits and lends to businesses
through dedicated distribution channels and
relationship managers. Instead, we make
investments and ofer guarantees through a
very broad range of private sector partners.
This allows us to work with the market rather
than to replace it, and ensures that our
support increases competition and reaches
smaller businesses as efciently as possible.
Working with the private sector also
allows the Bank to leverage its impact by
stimulating the deployment of signifcant
quantities of additional funding. For each
£1 the Bank invests or guarantees over the
next fve years, we expect a private sector
contribution of £2 to £3.This makes the most
use of Government funds and generates a
meaningful impact in the market.
The Bank brings together the
management of all Government-supported
national access-to-fnance programmes for
smaller businesses (with the exception of
export fnance, housing fnance and grant
programmes) under one management
structure.
Our headquarters are in Shefeld with a
further ofce in London. Our team combines
expertise from the private sector, including
specialists in product development, fnance
and risk, policy and economic assessment
skills from the public sector.
Although the Bank has a public policy
objective, it will act in a commercially-minded
way to invest Government money most
efectively for the best possible beneft.
Relationship with the Shareholder
Once State aid approval has been obtained’
to the start of this sentence. So ‘Once State
aid approval has been obtained, the British
Business Bank will be an operationally
independent institution that operates at arm’s
length from Government.
The Secretary of State for Business,
Innovation and Skills, through the
Government’s Shareholder Executive, will
hold 100% of shares in the Bank.
The shareholder will set the Bank’s remit
and high level strategic objectives. We will
seek approval from the shareholder for a
medium term business plan, updated on an
annual basis, and will design and operate our
own programmes.
A number of existing assets comprising
fund investments made historically by
Government will move onto the Bank’s
balance sheet. In line with the agreed
business plan, we will have the freedom to
draw down additional funding and recycle
funding from existing commitments.
We will be required to marry an approach
based on the best practice of corporate
governance for a smaller quoted company with
the principles of ‘Managing Public Money’ and
other public sector frameworks.
HOW WE
ARE RUN
24 | British Business Bank Strategic Plan
For each £1 the Bank
invests or guarantees over the
next fve years, we expect a
private sector contribution of
£2 to £3
British Business Bank Strategic Plan | 25
HOW WE
ALLOCATE OUR
RESOURCES
W
e want to focus our resources on areas where markets are not working well. Markets change over time, and the
types of frms that are well or not well served changes over time too. Our fexible business planning process refects
this changing environment. The development of new products, and the improvement of existing products is
essential to help meet our goals.
All potential and existing products will be assessed against a set of criteria which include:
l Monetised economic impact – net present value, following a British Business Bank methodology that applies standard Government principles
l Non-monetised costs and benefts – such as innovation, exports, competition and longer-term market creation
l Market imperfection targeted – a qualitative assessment of how well a specifc market failure is being addressed
l Delivery considerations – including scale, speed of deployment, funding required, capacity, risk and regulation.
1. Assess market
environment
2. Defne priority areas 6. Deliver operational
plan
3. Assess impact of existing
activities and need for new
areas of activity
5. Agree business
plan with board and
shareholder
4. Financial models for
resource allocation and
forecast. Risk assessment
Business planning process
MARKET
SEGMENTATION
W
e use our analysis of the market
to segment smaller businesses
into three target groups, which
we believe are most acutely
afected by market imperfections and which
could make a more valuable contribution to
the UK economy if they were able to access
the fnance they need.
Start-ups
Firms less than two years old make
up around a ffth of the UK’s smaller
businesses. They also have the highest
rejection rate for bank loans of all
smaller businesses; around three-ffths
compared with just over a third for smaller
businesses overall. Start-ups are also
more likely to have a high proportion of
discouraged borrowers - frms that would
have liked to apply for fnance but were
discouraged from applying by their bank.
Growth frms – companies that have
achieved positive growth over the
last 12 months
These companies represent around 30%
of all smaller businesses. In periods of high
growth, frms will often become stretched
and will need to access fnance in order to
keep investing in their business. If unable
to access this fnance, they are likely to
see their growth constrained, leading to
lower growth across the whole economy.
While these companies generally have
more success applying for fnance than
most smaller frms as a whole, they also
have much higher rejection rates than
medium-sized businesses (companies with
turnover between £25 and £500 million).
Improving the success rate among growth
frms applying for fnance could signifcantly
contribute to the UK economy.
Other viable but underfunded
companies
These are stable, viable companies which
nevertheless require external fnance
for the day-to-day running of their
business. Once again, these frms face
higher rejection rates than medium sized
businesses, often despite having good
risk ratings and balance sheet. Studies
have found that the tightening credit
conditions following the fnancial crisis
disproportionately afected smaller frms
with low to average risk ratings, while the
rejection rates for higher-risk companies
remained the same.
14%
14% of the total number of
start-ups are not currently
served by the market.
9%
of the total number of
growth frms are not served
by the market; they are
either rejected outright or
discouraged from applying
for fnance.
7%
of the total number of low
and average growth frms
that are not properly served
by the market.
We are uniquely
placed to understand
business fnance
markets for smaller
frms”
26 | British Business Bank Strategic Plan
British Business Bank Strategic Plan | 27
OUR
PROGRAMMES
W
e have segmented the market into three core target groups: start-ups and early stage frms; frms planning to grow, and other
stable frms with viable business propositions not able to obtain fnance.
Our programmes are designed to make fnance markets work better for these groups. The table below shows which of our
activities targets identifed market gaps:
Start-ups Growing frms Other viable underfunded frms
Venture Capital Solutions
Lending Solutions
Investment programme
Wholesale Solutions
MARKET
SEGMENTATION
28 | British Business Bank Strategic Plan
VENTURE
CAPITAL
SOLUTIONS
Our Venture Capital Solutions team is focused on supporting a vibrant and diverse venture capital market to support early stage and high-
growth frms in the UK. The team is responsible for the design and delivery of a range of products that support the fow of venture capital
based investment into smaller businesses.
Venture Capital Solutions
Angel CoFund
Enterprise Capital
Funds
VC Catalyst Fund Aspire Fund
British Business Bank Strategic Plan | 29
For smaller, younger frms, our main
activity is focused on the Business
Angel Co-Fund, which makes equity
investments of between £100,000 and £1
million in smaller businesses in the UK.
The Co-Fund invests alongside business
angel syndicates, where a number of
angel investors team up, to generate
sufcient capital to help smaller businesses
really fourish. Through these commercial
investments, the Co-Fund is able to
ensure that companies are properly
fnanced to a level which allows them
to reach meaningful points in their
development, fund research, open up
new markets or deliver new projects. This
targets an important equity gap for smaller
businesses seeking fnance. The businesses
supported by the Co-Fund have high growth
potential, often looking to extend well
beyond our domestic markets, and cover
sectors such as medical instruments, high
tech manufacturing and internet enabled
technologies.
In 2013/14 the Co-Fund supported £35.8
million of investment in smaller businesses.
Collectively, businesses backed by the Co-
Fund employ over 700 people, but through
the next eight years of the fund’s life we
expect to support more than 6,000 jobs.
Enterprise Capital Funds (ECFs) are
our main support for early-stage venture
capital. These funds are structured so
that Government provides two thirds of
funding (up to £50 million), and private
sector investors match this with one
third. The private sector investors take
on relatively more risk and are granted a
larger share of the returns, incentivising
private sector involvement in this part of
the market.
Each fund is managed by an experienced
fund manager, pulling in private sector
capital from a variety of sources – including
teams from the venture capital industry
as well as serial entrepreneurs with a
history of success in building early stage
UK companies. Applications from the fund
managers are subject to a competitive
process and are evaluated by our venture
capital team before a decision to co-invest
into a fund is made.
The programme currently has sixteen
separate funds, of which nine are currently
investing, with a combined investment
capacity of over £530 million. In the last
fnancial year, the funds invested £39.2
million in smaller businesses.
Case Study: Gousto
Gousto provides customers with fresh
organic ingredients for a wide range of
exciting menus, delivered straight to
the door to cook at home. Customers
choose recipes online, and have all the
ingredients delivered in the correct
proportions, alongside recipe cards and
cooking instructions. Founded in 2011,
it now delivers over 10,000 meals a
month. Gousto received a combined
£500,000 from the Angel CoFund and
an angel syndicate, which enabled
Gousto to secure a further £1m in
institutional funding.
Case study: Sirigen
Based in Ringwood, Hampshire and
with an ofce in California, Sirigen has
developed technology that improves
the diagnostics of clinical tests. ECF
funding enabled Sirigen to launch the
product and start sales, while investors
also provided strategic direction to
the business. Two large commercial
contracts followed and the company
was successfully sold in September
2012 to Becton Dickinson for a
signifcant undisclosed sum, generating
up to a 4x return to investors.
Forward Plan
We anticipate that the Co-Fund
will be able to back around 50
new investments each year
during the next few years,
setting a commitment to recycle
at least £40 million of that
investment into new businesses
within its frst ten years.
Forward Plan
We have recently secured State
aid approval from the European
Commission to extend our
programme, allowing larger
funds – an increase in the initial
investment round size from £2
million to £5 million – and larger
investments – an increase in the
maximum investment from £25
million to £50 million. Since the
fnancial crisis, the ‘equity gap’
in the venture capital space has
grown, as some investors have
withdrawn due to poor returns
over the last few years. This
change will therefore help us
to better address the current
market gap in the venture
capital area.
Business Angel Co-Fund
Enterprise Capital Funds (ECFs)
30 | British Business Bank Strategic Plan
VENTURE CAPITAL
SOLUTIONS
AMADEUS IV EARLY STAGE FUND
Amadeus Capital Partners amadeuscapital.com
Seed and early-stage disruptive tech in ‘big data’ analytics,
cloud computing, cyber security, low-power computing,
‘internet of things’, medical tech and digital healthcare
Notable investment: N/A
Fund size (to
date) £33.2m
From government
£15.0m
Invested
£0.0m
Investments
0
Exits
n/a
Launched
2013
Investing
YES
IQ CAPITAL FUND I
IQ Capital Partners iqcapital.co.uk
Focuses on seed and early-stage high-tech ventures
Notable investment: Neul
Fund size
£25.0m
From government
£16.7m
Invested
£22.8m
Investments
14
Exits
3
Launched
2006
Investing
NO
AMADEUS & ANGELS SEED FUND
Amadeus Capital Partners amadeuscapital.com
Makes seed-stage tech investments
Notable investment: OneDrum
Fund size
£10.0m
From government
£6.5m
Invested
£6.0m
Investments
8
Exits
1
Launched
2006
Investing
NO
FORESIGHT NOTTINGHAM FUND
Foresight Group foresightgroup.eu/nottingham
High-growth businesses based in Nottinghamshire
Notable investment: Positive Outcomes
Fund size
£40.0m
From government
£25.0m
Invested
£2.0m
Investments
2
Exits
n/a
Launched
2013
Investing
YES
CATAPULT GROWTH FUND
Catapult Ventures catapult-vm.co.uk
Invests in early growth-stage companies across
most sectors
Notable investment: Oxford Biotherapeutics
Fund size
£30.0m
From government
£18.0m
Invested
£25.5m
Investments
20
Exits
1
Launched
2006
Investing
NO
OXFORD TECHNOLOGY ECF
Longwall Ventures longwallventures.com
Invests in early-stage science/healthcare, engineering
and software
Notable investment: Merciria
Fund size
£30.0m
From government
£20.0m
Invested
£22.0m
Investments
19
Exits
2
Launched
2008
Investing
NO
LONGWALL VENTURES ECF
Longwall Ventures longwallventures.com
Disruptive early-stage science, engineering and
technology B2B ventures.
Notable investment: Oxford Photovoltaics
Fund size
£40.0m
From government
£25.0m
Invested
£3.5m
Investments
8
Exits
n/a
Launched
2012
Investing
YES
GLASGOW
British Business Bank Strategic Plan | 31
LONDON
PASSION CAPITAL
Passion Capital passioncapital.com
Seed investor in digital media and consumer
technology ventures
Notable investment: Mendeley
Fund size
£37.5m
From government
£25.0m
Invested
£18.0m
Investments
39
Exits
4
Launched
2011
Investing
YES
SERAPHIM CAPITAL FUND
Seraphim Capital seraphimcapital.co.uk
Invests £600,000-1.5m in ‘disruptive’, scalable early-stage
tech Notable investment: Sirigen
Fund size
£30.0m
From government
£20.0m
Invested
£25.2m
Investments
12
Exits
1
Launched
2006
Investing
NO
EPISODE 1 INVESTMENTS
Episode 1 episode1.com
Backs UK software start-ups that have launched viable
products to a few “reference” customers
Notable investment: Carwow
Fund size
£37.5m
From government
£25.0m
Invested
£2.1m
Investments
4
Exits
n/a
Launched
2013
Investing
YES
PANORAMIC ECF1
Panoramic Growth Equity pgequity.com
Private equity investor in UK growth SMEs with £1m+
revenues across all mainstream sectors, except life
sciences and turnarounds
Notable investment: Solfex Energy Systems
Fund size
£34.0m
From government
£20.0m
Invested
£10.7m
Investments
8
Exits
1
Launched
2010
Investing
YES
DAWN CAPITAL ENTERPRISE FUND
Dawn Capital dawncapital.com
Traditional industries adopting innovative technology
to improve products and services
Notable investment: Mimecast
Fund size
£30.0m
From government
£20.0m
Invested
not disclosed
Investments
12
Exits
0
Launched
2006
Investing
NO
NOTION CAPITAL 2
Notion Capital Partners notioncapital.com
Focuses on cloud computing and
software-as-a-service businesses
Notable investment: Shutl
Fund size
£76.3m
From government
£25.0m
Invested
£19.5m
Investments
13
Exits
1
Launched
2012
Investing
YES
MMC ENTERPRISE CAPITAL FUND
MMC Ventures mmcventures.com
Invests in technology-enabled businesses in high-
growth sectors, including financial services, business
software and services, digital media and e-commerce
Notable investment: AlexandAlexa
Fund size
£30.0m
From government
£20.0m
Invested
£22.4m
Investments
13
Exits
0
Launched
2008
Investing
NO
SUSTAINABLE TECHNOLOGY FUND
Disruptive Capital Finance disruptivecapital.com
Invests in cleantech, green and sustainable-technology
ventures
Notable investment: ECO Plastics
Fund size
£30.0m
From government
£20.0m
Invested
£24.0m
Investments
6
Exits
0
Launched
2006
Investing
NO
REGENTS PARK PARTNERS II
Sussex Place Ventures spventures.com
Backs early-stage technology ventures
Fund
£30.0m
From government
£20.0m
Invested
£0m
Investments
n/a
Exits
n/a
Launched
2014
Investing
YES
MELTON MOWBRAY
HARWELL
CAMBRIDGE
NOTTINGHAM
S
O
U
R
C
E
:
I
C
A
E
W
C
O
R
P
O
R
A
T
E
F
I
N
A
N
C
E
F
A
C
U
L
T
Y
R
E
S
E
A
R
C
H
-
E
C
F
F
U
N
D
M
A
N
A
G
E
R
S
£543.5m has been
committed to
16 ECFs, managed by
14 fund managers.
More than £204m has been
invested in
169 companies, leaving
more than £300m
still to be invested.
©
I
C
A
E
W
2
0
1
4
.
F
I
R
S
T
P
U
B
L
I
S
H
E
D
I
N
C
O
R
P
O
R
A
T
E
F
I
N
A
N
C
I
E
R
M
A
G
A
Z
I
N
E
32 | British Business Bank Strategic Plan
In addition to the ECF programme, we also
have the capacity to help close funds for
slightly later stage venture capital. Our VC
Catalyst Fund invests - on the same or better
terms than private investors - in commercially
viable venture capital funds which might
otherwise fail to launch, enabling them to
invest in smaller, high growth businesses.
It addresses a cyclical weakness in the
provision of institutional capital to venture
capital funds which has made it more
challenging, even for established teams
in the market, to reach a satisfactory frst
close. It targets commercial returns from
its investments, in line with that of private
sector investors, and looks to ensure that
at least twice the Government funding
committed is invested in UK companies.
The Fund typically commits between
£5 million and £10 million to underlying
funds; this will not be more than 20% of
the total fund size. Applications from fund
managers are subject to a competitive
process, and potential fund managers are
only considered formally for the Fund once
they have signifcant private investment
already committed. Funds will typically
have a minimum size of at least £50 million
at their frst close, though proposals for
smaller funds will be considered on a case-
by-case basis.
Panoramic ECF 1 – Panoramic Growth Equity
UK-wide – Generalist growth equity
www.pgequity.com
Passion Capital ECF – Passion Capital
UK-wide – Early stage digital media and
technology start ups
www.passioncapital.com
Notion Capital Fund 2 – Notion Capital
UK-wide – Internet-based services including
cloud computing
www.notioncapital.com
Notion Capital Fund 2 – Notion Capital
UK-wide – Stage science, engineering and
technology
www.longwallventures.com
Amadeus IV Early Stage Fund ECF – Amadeus
Capital Partners
UK-wide – Companies developing disruptive
technologies
www.amadeuscapital.com
Dawn Capital II – Dawn Capital
UK and Europe – Targeted at businesses in the
cloud, software and consumer internet sectors
www.dawncapital.com
Episode 1 ECF – Episode 1
UK-wide – Early stage software
www.episode1.com
Foresight Nottingham Fund – Foresight Group
Nottinghamshire region – Generalist
/www.foresightgroup.eu/nottingham/
the-fund.asp
Regents Park Partners II ECF LP – Sussex Place
Ventures
UK-wide – Early Stage Growth Companies
www.spventures.com
Forward Plan
Due to the successful pilot, we are
currently extending the VC Catalyst
Fund to £125 million. We will use this
extension to attract signifcant private
sector funding and deliver major
investment into UK companies over
the next ten years.
VC Catalyst Fund Enterprise Capital Funds currently investing:
VENTURE CAPITAL
SOLUTIONS
British Business Bank Strategic Plan | 33
The Aspire Fund invests in women-led
businesses across the UK. It makes
investments of between £100,000 and
£1 million on a co-investment basis,
investing on the same or better terms
as private investors. Lead investors can
be established venture capital funds or
experienced business angels. The Aspire
Fund helps to increase the number of
successful women-led businesses within
the UK, and to ensure those with real
potential to succeed are not held back
through a lack of growth capital. The Aspire
Fund supported £5.5 million of investment
in smaller businesses in 2013-14.
Aspire Fund
Case Study: Wool and The Gang
Wool and The Gang is an online
boutique specialising in fashion
knitwear selling ready-to-wear items or
kits to knit for customers to create their
own unique versions.
It was established in 2008 by Central
St Martins graduates Aurelie Popper
and Jade Harwood, with Lisa Rodwell,
formerly of Moo.com, as Chief Executive
to implement the new business strategy.
The £200,000 from the Aspire Fund will
enable them to expand their business.
We will also manage a large portfolio of legacy investments made by Government in
venture capital and also some debt funds. For example, we oversee large local fnance
interventions for smaller businesses which have been funded by a mixture of UK and
European money, including the three northern English funds supported by EU funding,
which together provide more than £450 million of investable capital for smaller
businesses. We also manage BIS’s interests in 90 regional funds with commitments of
over £1 billion.
As well as providing oversight for existing funds, British Business Bank expertise
is instrumental in helping to shape the future access to fnance landscape for smaller
businesses, working in conjunction with BIS, the Department for Communities & Local
Government and the 39 English Local Enterprise Partnerships (LEPs).
The Aspire Fund helps to increase the number of successful women-led
businesses within the UK, and to ensure those with real potential to succeed
are not held back through a lack of growth capital”
34 | British Business Bank Strategic Plan
LENDING
SOLUTIONS
Our Lending Solutions team manages a range of programmes and products that support the fow of debt-based fnance into smaller
businesses, helping them to prosper, grow and build UK economic activity. The team facilitates lending for smaller businesses through a
number of diferent mechanisms.
Lending Solutions
Start-Up
Loans
Enterprise Finance
Guarantee
For very small, very early stage frms, we
provide funding through the Start-Up Loans
programme, which supports entrepreneurs
looking to start their own business, who
have potentially viable propositions but
cannot otherwise attract investment from
a high street bank. The programme ofers a
repayable loan of up to £25,000, over up to
fve years, combined with a business mentor.
The Start-Up Loans programme is run
on a day-to-day basis by the Start-Up Loans
Company, an independent business created
expressly for the delivery of the programme.
The company has subsequently contracted
with over 70 delivery partners to deliver loans
and mentorship.
The Start-Up Loans programme lent over
£70.6 million to new entrepreneurs in the
last fnancial year, backing nearly 14,000
businesses. The programme is on track to
meet its target of supporting 30,000 new
businesses by 2015.
Case study: FittaMamma
Alexandra McCabe, a 29 year old entrepreneur from Burgess Hill has been given
a £9,500 Start-Up Loan to help develop her clothing line and resource centre for
active pregnant women. As well as funding, Alexander has benefted hugely from
the support provided to her through George Clayson, her mentor. The commercial
expertise George provided Alexandra was invaluable to the growth of her business.
Forward Plan
Having built momentum and expanded across the UK since its launch in 2012, the
Start-Up Loans programme will continue to support new entrepreneurs with up to
300 loans a week.
Start-Up Loans
British Business Bank Strategic Plan | 35
We also run the Enterprise Finance
Guarantee (EFG), which aims to improve
the availability of working capital
and investment funding for smaller
businesses. The EFG provides a partial
guarantee to encourage lending
institutions to lend to viable smaller
businesses that would otherwise be
declined for lacking collateral.
The guarantee is available to lenders
serving viable smaller businesses with
an annual turnover of up to £41 million,
seeking loans of between £1,000 and
£1.2 million over terms of between three
months to ten years. The product also
provides guarantees on invoice fnance,
overdrafts and other revolving facilities
over terms of up to three years. The EFG
is delivered by 42 accredited lenders
ranging from the main bank to very local
small lenders.
In the last fnancial year, the EFG facilitated around £350 million of lending, supporting over
3,000 smaller businesses. The majority of EFG loans drawn are worth less than £100,000. The
table below breaks down the percentage of EFG loans drawn between diferent value bands:
Mezzanine Finance is a hybrid between pure debt and pure equity fnance. It is often used by high growth mid-sized companies and by property
developers. In the 1980s and earlier, it was used by smaller companies, but has become less common since then.
Forward Plan
We are currently exploring how the Enterprise Finance Guarantee might be applied to unlock further fnance for smaller businesses, in
particular the possibility of applying the guarantee to asset fnance and trade credit facilities.
Enterprise Finance Guarantee
Mezzanine fnance
Case study: Viva Brazil
Viva Brazil is a Brazilian-style
restaurant using traditional
barbeque methods. It opened its frst
restaurant in Liverpool in September
2010 and the second in Glasgow a
year later. The expansion of the chain
to Cardif, creating 30 new jobs, was
facilitated by a £375k funding deal
from participating lender, Santander
Corporate Banking.
Less than £25K
£25,001 to £50K
£50,001 to £100K
£100,00 to £250K
£250,001 to £500K
£500,001 to £1 million
Percentage of number of EFG loans
drawn by value bands, Q1 2014.
How it works
Lender Borrower
Guarantee Payment
(Premium)
Acting as guarantor in lieu of
sufcient security
Loan or other debt facility
not otherwise available
Payment (Capital, Interest & Fees)
Forward Plan
We are currently gathering evidence regarding historic and international supply and demand of mezzanine fnance for smaller
businesses. We will publish an evidence paper in July 2014 and further proposals subsequent to that.
36 | British Business Bank Strategic Plan
INVESTMENT
PROGRAMME
O
ur Investment Programme
addresses long-standing gaps
in the fnance market for smaller
business and promotes greater
choice in their supply of lending.
The Programme launched in April
2013 and makes commercial investments
that stimulate at least the same amount
of investment from the private sector,
encouraging new lenders into the market
and the growth of smaller lenders.
Once state aid approval for the British
Business Bank is complete, we expect to
move the Investment Programme into a
subsidiary of the British Business Bank plc.
This may comprise all the Bank’s investments
that have a commercial rate of return, almost
£1 billion of commitments made to debt
funds and other lenders by Government.
Applications by innovative smaller
fnance providers for investments are
subject to a formal assessment process;
they are frst analysed by the Investment
Programme team before being progressed
to an Investment Advisory Panel, which is
made up of members of the Business Bank
Project’s Executive Committee and external
panel members, before a fnal investment
decision is made.
Since launch, the Investment Programme
has received over 100 applications, with
combined requests for funding of £3 billion.
To date, £198 million of awards have
been recommended by our Investment
Advisory Panel.
The Investment Programme is providing
support to a range of fnance providers
who meet the funding needs of smaller UK
businesses, funding growth, working capital
and asset acquisition. The Programme has
been established as an open competition,
the parameters of which permit the British
Business Bank to seek to build a diversifed
portfolio and prioritise catalytic ventures
– those capable of being scaled to provide
an enduring source of funding for smaller
businesses. The sub-sectors supported to
date have covered debt funds, peer to peer
platforms, and lease fnance.
The Programme builds on a forerunner
programme called the Business Finance
Partnership.
Case Study: Lund
Precision Reeds
Lund Precision Reeds can trace
its heritage back to 1871 and is
recognised as one of the world leading
manufacturers of high-quality weaving
reeds, warp preparation reeds and
yarn guides. Lund borrowed £50,000
through Funding Circle to enhance
growth opportunities in both the UK
and export markets. They also used the
fnance to upgrade existing machinery
to improve the quality of their products
and help them to penetrate more
demanding markets worldwide.
British Business Bank Strategic Plan | 37
Funders supported through the Investment Programme and Business Finance Partnership
Forward Plan
As the Investment Programme draws closer to awarding its total initial £300 million allocation, we will soon be announcing the next
phase of the Programme, which will continue to address specifc gaps in the fnance markets for smaller businesses.
The intention is also to transfer £863 million of commitments under the Business Finance Partnership made by HM Treasury to the
British Business Bank.
The Investment Programme is providing
support to a range of fnance providers who
meet the funding needs of smaller UK
businesses, funding growth, working capital
and asset acquisition”
BMS fnance
Beechbrook Capital
Boost Capital
Praesidian Capital
Market Invoice
CAML
Funding Circle
Zopa
URICA
38 | British Business Bank Strategic Plan
WHOLESALE
SOLUTIONS
Wholesale Solutions
Wholesale
Guarantees
Asset Funding
Finance Vehicle
The Wholesale Solutions team is responsible for the design and delivery of funding and capital products and programmes to help increase
the fow of fnance to smaller businesses.
We are developing a new programme
of Wholesale Guarantees which aims to
make lending to smaller businesses more
attractive to banks by increasing their
capital efciency. A request for proposals to
pilot the frst phase of this programme was
launched in March 2014. The programme
will share a portion of the underlying second
loss risk on portfolios of newly originated
loans, thereby giving a more favourable
capital treatment to participating banks.
The wholesale solutions team is working
on variants to this programme in order
to tackle diferent segments of smaller
business lending, work with a variety of
fnance providers, and potentially help
address both capital and funding constraints.
We have brought together a team with
signifcant experience of portfolio risk
transfer trades in the private sector to
develop this programme.
Wholesale Guarantees
Asset Finance Funding
Vehicle
We are currently developing an Asset Finance
Funding Vehicle which is designed
to help smaller businesses seeking
asset fnance.
We intend to deliver this in conjunction
with the European Investment Fund (EIF); the
programme and the EIF will each assume 50%
of the credit exposure.
The vehicle will combine portfolios
of newly originated asset fnance transactions
from a number of mid and smaller sized
originators. The programme will provide the
initial senior funding to warehouse the assets
until the aggregate portfolio size is sufciently
large for a capital markets take out.
Forward Plan
The team is currently in discussions
with potential lenders for the pilot,
with the frst transactions expected
to be structured in summer 2014.
Subject to positive outcomes of
these, the Wholesale Guarantees
programme will be opened to further
transactions.
Forward Plan
We are currently discussing this the
European Commission for State aid
approval.
WIDER
ACTIVITY TO
IMPROVE THE
MARKET
I
n addition to our activities which tackle
specifc market issues, we also have a
strategic objective to promote better
information in the market, building
confdence among smaller businesses in
their understanding of the fnance options
available. By raising businesses’ awareness
of fnance options or making it easier to fnd
them, supply and demand for fnance will be
brought together more efciently.
To achieve this, we work in partnership
with leading business representative
groups and fnance bodies, leveraging
their reach to raise awareness and educate
their members. An example of this is a
new guide to business fnance, aimed
at smaller businesses, which the Bank
is producing jointly with the Institute
of Chartered Accountants for England
and Wales, with input from a further
sixteen representative bodies and fnance
providers. This guide will be published on
June 26, in print and digital form.
Our website provides information
on the Bank’s programmes and links to
relevant partner organisations. It provides
guidance to business on the types of fnance
available to meet diferent fnance needs,
with a description of their advantages
and disadvantages. The site also links to
further information such as the British
Bankers Association Finance for You tool,
the fnance and support fnder on GOV.
UK, the British Private Equity and Venture
Capital Association online one-stop shop
for venture capital and entrepreneurs, the
appeals process for companies that have had
loans turned down and the fnance advice
schemes ofered by chartered accountants.
In a wider context we have close
relations with, and work alongside, other
important public initiatives and institutions,
such as the Green Investment Bank and the
Technology Strategy Board.
We are also working in conjunction
with policy ofcials in HM Treasury and
BIS to consider developing policy options
for a new referrals system, where banks
which have rejected smaller businesses’
applications for fnance will refer these to
alternative lenders. In conjunction with
planned Government legislation to require
banks to share information on their smaller
business customers with other lenders
through Credit Reference Agencies, this
should drive a signifcant change in the way
that smaller businesses access credit in the
UK, helping to make it easier for alternative
and innovative fnance providers to
compete in the marketplace and to increase
access to fnance for smaller businesses.
In the publication ‘Small Business: GREAT
Ambition’, the Government committed
to review all national business support
products and services to simplify and
enhance business access to and experience
of Government funded support. We
will align our programmes so that the
Government’s support ofer to businesses
is clear and simple to understand. As
part of this, we are committed to provide
smaller businesses with information about
the range of public and private sources
of fnance available to them through the
GREATbusiness.gov.uk website.
British Business Bank Strategic Plan | 39
40 | British Business Bank Strategic Plan
Strategic Purpose Strategic Objectives
Strategic Plan
Financial and operational KPIs Economic Evaluations Strategic KPIs
Achieved by delivering
Fullflled by
achieving
Assessed by
conducting ex post
Tracked using
Q
u
e
s
t
i
o
n
s
a
n
s
w
e
r
e
d
Is it the Bank on track to
achieve its key Strategic
Objectives?
Is each product achieving
its share of the Strategic
Objectives?
Is the funding unlocked
through Business Bank
programmes additional?
How are businesses
supported through Business
Bank programmes growing
compared to other businesses?
What is the impact on Gross
Value Added (GVA) in the
economy as a whole?
Are individual programmes
performing against their
operational and fnancial
KPIs?
Is the Bank on track to deliver
its Business Plan?
Are key planning assumptions
holding true?
ASSESSING OUR
PERFORMANCE
W
e want to be in a position to
understand at all times how
we are performing against our
remit and strategic goal. We
have created a framework which breaks
performance measurement into three areas:
l Strategic Key Performance Indicators
(KPIs) – measuring how we are performing
against our high level, longer term
strategic objectives.
l Economic Indicators – measuring whether
our programmes and products are
providing additional fnance to smaller
businesses as intended, and what the
impact on economic growth is.
l Operational and Financial KPIs – measuring
how each programme/product is doing
against a set of annually defned KPIs.
British Business Bank Strategic Plan | 41
Objective Key Performance Indicators
l To increase the supply of fnance available
to smaller businesses in areas where
markets do not work well
l Up to £10 billion stock of fnance
facilitated through our programmes over 5
years
l Clear demonstration that activities are
focused on market imperfections
l To help create a more diverse fnance
market for smaller businesses with
greater choice of options and providers
l Over 50% of our fnance facilitated
through providers other than the four
largest banks over 5 years
l Clear demonstration that a broad range of
options and providers has been supported
l To help ensure better provision of
information in the market connecting
smaller businesses and fnance providers
l Clear survey evidence from smaller
businesses and fnance providers that
information about fnance options has
improved
l To manage taxpayers’ resources
efciently
l To earn greater than the Government’s
medium term cost of capital over the next
5 years measured by the 5 year gilt rate at
the beginning of the plan
l To demonstrate value for money through
evaluation of programmes
We want to be
in a position to
understand at all
times how we are
performing against
our remit and
strategic goal”
The table below sets out our strategic objectives and the relevant strategic KPIs:
42 | British Business Bank Strategic Plan
In addition, fnancial performance is
monitored in terms of funding drawdowns,
income and capital returns.
We are in the process of developing a
performance management process which
will set the operational and fnancial KPIs
for each product going forward. In order
to develop these, we are analysing the
underlying drivers for operational and
fnancial performance for each product. We
will publish these KPIs together with our
performance against them in our frst full
year business plan, by April 2015.
At a product level, we will also complement
the available fnancial and operational
indicators with robust economic evaluations.
This is already ongoing for existing
programmes and will continue to clearly
establish the extent to which individual
Business Bank programmes have been
successful in addressing market failures.
Each product has its own evaluation plan.
The nature and timing of the evaluations will
be product specifc, but broadly we will seek to
use the following mixed-methods approach:
l Early assessment (1 year in): this is
likely to occur while the product is still
rolling out or has just been rolled out. The
evaluation seeks to understand whether
the product was implemented efciently;
how it is being delivered; whether it is
targeting the right groups; and provides
a description of the customer journey. It
may also provide an early assessment of
the product’s fnance additionality, taking
account of displacement and deadweight.
At this stage there is likely to be limited
data and therefore the evaluation will
most likely rely on information collected
through a small set of in-depth interviews
with participants and delivery partners.
The results are likely to be less robust
and will not provide any estimates
of the impact of the scheme on frm
performance and economic growth.
However, they will provide valuable
information on how to improve the
deliverability of the product.
l Interim evaluation (3-4 years in): this
is likely to be conducted once a product
has been running for some time. A
large scale survey with participants and
providers is typically conducted. This
ofers the opportunity to obtain a better
assessment of fnance additionality and
displacement and deadweight as well as
the impact of the fnance provided on the
business and its performance – turnover,
employment and productivity growth. It
also provides opportunities to conduct
an initial cost beneft analysis and assess
whether the product represents value for
money for the taxpayer.
l Final-evaluation (5-7 years):
quantitative methods are used to provide
the most robust assessment of the
product’s impact. There is likely to be a
long-time series of data and econometric
techniques can be used to assess the
impact of the programme on fnance
additionality and frm growth.
This product-specifc evaluation work
will be complemented by a robust market
analysis and research programme. Areas
of work include:
l Producing a regular review on the
state of the fnance market for smaller
businesses, which will set out our view of
the business fnance markets and where
the gaps are;
l Producing more detailed assessments
of specifc markets to inform any
new products that we may consider
developing further;
l A world-class research programme on
access to fnance as well as work to
benchmark the British Business Bank’s
activities against counterparts in other
OECD countries;
l Using behavioural economics to
investigate and change frms’ attitudes
towards raising fnance;
l Ensuring that data produced on bank
lending to smaller businesses is
supplemented by data on alternative
forms of fnance; and
Our market analysis team will work closely
with academics and industry experts to
ensure all its activities are informed by
cutting-edge economic theory and a deep
understanding of the market.
ASSESSING OUR
PERFORMANCE
Financial and operational KPIs
Taking the Investment Programme we launched in April 2013 as an example, the clearly
articulated programme objectives are to:
• support the development of diverse debt fnance markets available to SMEs
(diversifcation);
• mobilise additional funding from private sector sources in order to support lending to
SMEs (leverage);
• channel fnance to SMEs in an efective, appropriate and responsible manner
(efective deployment); and
• expand the aggregate amount and/or types of debt funding available to SMEs
(additionality).
Applications for funding are evaluated according to a set of nine criteria contained in the
public guidance, relating to key issues such as proposed target market or fund size.
An Investment Advisory Panel was established to provide investment appraisal
expertise for the Investment Programme. The Panel comprises fve external
independent members and two Government members. This ensures strong external
scrutiny of all formal proposals, both before and after due diligence has been conducted.
Each of our programmes has a robust governance process in place, with clear objectives, assessment criteria for funding applications and an
expert investment committee advising on investment decisions.
Risk Processes & Methodologies
W
e have established a strong risk
and compliance team to provide
the Bank’s Board, shareholder
and other key stakeholders with
independent and objective assurance that
the bank operates with integrity, to high
standards and within its risk appetite.
The risk and compliance team will prepare
detailed reports for internal use, as well as
for external regulators and other bodies as
appropriate. It will also provide analytical
support to other areas of the bank, and ensure
good communication channels are in place to
support robust but constructive dialogue.
In the interim period, before the British
Business Bank becomes operational upon
securing State aid approval from the European
Commission, we are reviewing and assessing
the Bank’s risk management systems to be
ready for go-live.
The team has designed a Risk
Management Framework, which is a
collection of tools that support the British
Business Bank in identifying, assessing,
monitoring and controlling the risks it faces.
The framework informs development
of the risk infrastructure and provides a
sound basis for more informed risk-based
decision-making across the business areas,
acknowledging that we have a public policy
agenda – to ensure that fnance markets for
smaller businesses work efectively – and
thus not a specifc commercial strategy and
risk appetite.
Risk Management Framework
Risk Strategy & Appetite
Risk Governance
Risk Data & IT System
Risk Management Skill, Resources & Culture
Qualitative
Quantitative
Stress testing
Change
Identify
Control
Assess
Monitor
Aggregation
Reporting
V
a
l
i
d
a
t
i
o
n
The team has designed
a Risk Management
Framework, which is a
collection of tools that
support the British
Business Bank in
identifying, assessing,
monitoring and
controlling the risks it
faces ”
RISK
MANAGEMENT
British Business Bank Strategic Plan | 43
44 | British Business Bank Strategic Plan
FINANCIAL
SUMMARY
W
e have a total Government
funding allocation of close to
£3.9bn for our programmes,
for deployment over a number
of years. Some of this funding comes from
past spending review commitments to
existing programmes which are moving
into the Bank, and some is new funding for
innovative Business Bank programmes.
All existing Government-supported
national access to fnance programmes
(with the exception of export fnance
and grant programmes) will be managed
by the British Business Bank, including
investments already made and funding
commitments for future investments
under these programmes. For State aid and
regulatory reasons, not all programmes may
transfer to the balance sheet of the British
Business Bank, but will still be managed by
the Bank on behalf of BIS where they are
not transferred.
Through the 2012 and 2013 Autumn
Statements, we have obtained a further
£1.25bn of Government funding for our
new programmes, which forms part of the
£3.9 billion total Government allocation for
the Bank. Of this, we have already allocated
£300 million to the Investment Programme,
£50 million to the Angel CoFund and £125
million to the VC Catalyst Fund. This leaves
£775 million for deployment to our other
new planned programmes, including the
Wholesale Guarantees and the Asset
Finance Funding Vehicle.
All our programmes are longer term
programmes, so that we can efectively
work with our private sector delivery
partners. Therefore, funding allocations
for a programme are often distributed
across several years once made, and
are particularly long for venture capital
programmes.
Notes: The table above presents the total amount of funding available to programmes managed by the Bank,
over a number of years. For some programmes, all the funding available has already been drawn down. Some
of the funding above can be switched between programmes. In principle, funding can be recycled, subject
to future Spending Review decisions. Out of the Angel Co-Fund’s £100m funding, only £50m has come from
Business Bank programmes, with the remainder coming from the Regional Growth Fund.
Programme Public funding
ALLOCATED £m
Venture Capital Solutions
UK High Technology Fund 20
Regional Venture Capital Fund 74
Early Growth Fund 32
Bridges Ventures Fund 20
Enterprise Capital Fund 338
Aspire Fund 13
Capital for Enterprise Fund 50
UK Innovation Investment Fund 150
Angel Co-Investment Fund 100
VC Catalyst Fund 125
971
Lending Solutions
Start-Up Loans 322
Enterprise Finance Guarantee 553
875
Investment Programme
BFP (Small Business Tranche) 87
BFP Mid-cap Tranche 863
Investment Programme 300
1,250
Future programmes inc. Wholesale Programmes 775
Total 3,872
British Business Bank initial funding allocation, £m
British Business Bank Strategic Plan | 45
Where possible, we match our Government funding with
private sector funding, in order to generate a more signifcant
impact, and in order to catalyse the market rather than
replace it. Often, we invest our funding on the same terms
as private investors, which ensures that our investments are
made on a transparent and commercial basis. The proportion
of private sector match funding varies between types of
programmes, and so the average amount of private sector
funding per pound of public funding depends on the portfolio
mix of programmes. We estimate that over the next fve
years, we will attract £2 to £3 of private sector investment
per £1 of Business Bank funding.
Currently, the amount of fnance supporting businesses
through our programmes is £1.5 billion, not including the mid-
cap portion of the Business Finance Partnership, which will
transfer into the Bank in time for it becoming fully operational.
The graph below illustrates how we might deploy the funding allocations by programme area by 2018. This 2018 fgure is lower than £3.9
billion because some funding is expected to be drawn down after 2018, and the graph below measures Government exposure at a point in
time, whereas the total funding allocation of £3.9bn looks across the lifetime of programmes.
Notes: Illustrates expected cash
drawdowns for programmes except
the Enterprise Finance Guarantee
and the Wholesale Guarantees. For
the EFG, the expected net loss has
been included based on the stock
of lending outstanding at the time.
For Wholesale Guarantees, the
capital that will be held against the
Guarantees has been included.
The 2013/14 fgure includes the
mid-cap tranche of the Business
Finance Partnership, which is due
to transfer to the Business Bank
during 2014/15.
0
500
1,000
1,500
2,000
2,500
3,000
Capital returns for reinvestment
Venture Capital
Lending Solutions
Investment Programme
Wholesale Solutions
2013/2014 2014/2015 2015/2016 2016/2017 2017/2018
HMG Resources
46 | British Business Bank Strategic Plan
One of our strategic goals is to unlock £10bn of fnance by 2018,
combining public and private sector funding.
The graph below gives an illustration of how we might achieve this.
Of course, there is signifcant uncertainty in predicting our market
impact, particularly in later years:
l Once we commit funding to delivery partners, they typically have
a number of years to draw down the awarded funding, in line
with standard private sector process. Therefore, we do not have
control over the precise timing of drawdowns once we have made a
commitment.
l In addition, each year, through a report on our view of the state of
the market, we will update where we see gaps in the market, and will
allocate resources to the mix of products that best addresses the market
gaps. This means that whilst we are more certain of what our product
mix will be in the next two years, there is signifcant uncertainty beyond
this. For each product, the amount of private sector capital per public £ is
diferent, and therefore also the market impact.
Illustration of market impact by 2018, private and public resources
0
2,000
4,000
6,000
8,000
10,000
12,000
Capital returns for reinvestment
Venture Capital
Lending Solutions
Investment Programme
Wholesale Solutions
Note: Leverage ratios for each programme have been estimated using programme guidance and existing investments.
The ‘Stock’ is the amount of fnance actively supporting businesses at the end of each year, so the investments minus
any capital returned.
The 2013/14 fgure includes the mid-cap tranche of the Business Finance Partnership, which is due to transfer to the
Business Bank during 2014/15.
2013/2014 2014/2015 2015/2016 2016/2017 2017/2018
SME Finance Stock
British Business Bank Strategic Plan | 47
STRATEGIC
PLAN
JUNE 2014
©Crown copyright 2014
You may use this information (not including logos) free of charge and in any format or medium, under the
terms of the Open Government License. Visit www.nationalarchives.gov.uk/doc/open-government-license,
write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email:
[email protected].
This publication available from www.gov.uk/bis and www.british-business-bank.co.uk
Any enquiries relating to this publication should be sent to:
Department for Business, Innovation and Skills
1 Victoria Street
London SW1H 0ET
Tel: 020 7215 5000
BIS/14/918
doc_364079763.pdf