The Government has declined to release a breakdown of how the West Midlands publicly-backed venture capital fund is performing following a report showing a dismal collective return across all the equivalent UK funds.
Regional Venture Capital Funds – set up in nine regions to invest in small and medium-sized companies – showed a pooled interim rate of return of minus 15.7 in December 2008, with all nine funds registering negative returns, according to a report released earlier this month by the National Audit Office.
But no data has been made public about the West Midland’s Regional Venture Capital Fund – the Advantage Growth Fund – as the government said the information was commercially sensitive due to the fact private investors had put money into it.
The pooled performance of the nine regional funds is in contrast to private funds of a similar size and length of existence which show a return of minus 0.4 per cent – but these are subject to fewer investment restrictions.
Based on valuations at March 31, 2009, the government’s accounts currently value the £74 million invested in the nine Regional Venture Capital Funds at £5.9 million.
The report also showed that the private sector fund managers who are running the nine funds have pocketed £46.1 million – 36 per cent of the amount invested – leading the National Audit Office to suggest that the funds were “potentially an expensive form of business support”. It called for more public information on the performance of the venture capital funds.
The Advantage Growth Fund is a £17.5 million fund which contains investment from the government along with the European Investment Fund and private investors like HSBC, Barclays Bank, the Royal Bank of Scotland and a series of West Midlands universities.
The region’s fund, which can provide venture capital investment of up to £330,000 in any one company at any one time, is run by Birmingham-based fund managers Midven.
Midven director Roger Wood repeated the Department for Business, Innovation and Skills’ (BIS) assertion that no data on the performance of the Advantage Growth Fund could be released because of its commercial sensitivity but suggested the fund was performing “head and shoulders” above its counterparts in other regions.
It has recently exited from one of its investments in patient safety software firm ScriptSwitch when the company, which received Advantage Growth Fund investment in 2003, was sold to a US health firm for an undisclosed sum.
Amyas Morse, head of the National Audit Office, said: “These venture capital funds help small, often innovative, businesses that otherwise may have struggled. And there is evidence that some businesses have benefited from this support.
“But, in the absence of clear objectives and baselines from the start, coupled with poor financial performance to date of early funds, the department’s programme cannot currently be said to demonstrate value for money.
“Finally, there is no information publicly available about the funds.
“BIS should be more transparent, without compromising confidentiality.”
Meanwhile, Midven has been selected to run another recently-launched publicly-backed fund – the Early Advantage Fund.
The £8 million early-stage equity fund will provide investment in the region’s SMEs and will succeed the previous early-stage investment fund the Advantage Early Growth Fund which closed earlier this year.
The new fund can make an initial investment of up to £125,000, generally matched by private sector investors providing at least the same amount, resulting in up to £250,000 of investment into the business.
It can invest up to a further £125,000 in subsequent funding rounds – again matched by the private sector – but with the ability to put in more in certain circumstances.
Advantage West Midlands chief executive Mick Laverty said: “Advantage West Midlands is determined to develop the necessary financial products to ensure the region’s businesses, particularly our SMEs, have access to the funds they need to start up and grow.
“It builds on the experience of the Advantage Early Growth Fund which ended its initial investment period earlier this year, having invested a total of £8.8 million in over 60 businesses, leveraging nearly £23 million of finance from other sources.”
The new fund comes two months after Birmingham City Council announced it was launching an £11 million business support fund, administered by the regional stock exchange Investbx.