Business Growth Fund (BGF), the £2.5bn ($3.9bn) private equity firm backed by five UK-based banks, is preparing to set up a venture capital unit to invest in earlier-stage companies.
The nascent BGF Ventures is still recruiting a team to potentially start in the first quarter of next year, a BGF spokesman said.
Founded in 2011 after government pressure on local banks following state ownership was required when the credit crunch hit, BGF has invested about £250m in buying minority equity stakes in businesses with sales of approximately £5m to £100m.
The Ventures unit would invest in companies with smaller turnover after government pressure on institutions to do more to support innovation.
The UK set up its British Business Bank (BBB) earlier this year to coordinate its government debt and equity holdings. BBB coordinates £971m of assets across venture capital funds and businesses, according to its summer strategy report.
However, with the creation of BGF Ventures, experts close to government and BGF claimed there could be a case for BBB stepping back from some areas of investment. One said: “BGF would be the best-placed organisation to act as a catalyst for venture capital. BBB should act when the market does not work rather than compete with it.
“The way startups are evolving given there is about £1bn of angel money coming in through the EIS [Enterprise Investment Schemes] means institutional funders need to fit in. Forget history, what is the future? It is the whole environment working together from corporate venturing, seed and institutions.”
– A version of this article first appeared on Global Government Venturing.