The government is to launch a venture fund to invest in growing businesses after an independent review highlighted an equity gap for small firms seeking growth capital.
The Rowlands Growth Capital Review, led by former private equity chief Chris Rowlands, looked at the availability of finance for small and medium-sized businesses and the need for a government-backed VC fund.
The review found that there is a “permanent gap” for businesses looking for between £2m and £10m in growth capital, which neither banks nor equity investors “are likely to fill in the near future”.
Following the publication of the findings earlier today, prime minister Gordon Brown confirmed that the government would begin drafting proposals for a new growth fund to back companies looking to invest and expand.
Brown said: “We are publishing today the Rowlands Report which shows that we have too many small and high growth companies that need capital to grow – and therefore better access to finance.
“Where there is a gap in finance for companies looking to expand, we propose a Growth Capital Fund, a credible channel for private capital to invest in established and growing SMEs.”
Rowlands said access to finance for small and medium-sized businesses would prove vital to the economic recovery, resulting in increased competition, innovation and productivity.
“The review shows that there is a gap in the provision of growth capital to small and medium sized firms,” he said.
“This gap is permanent and we need to act in order to ensure that UK firms have the finance they need as we emerge from the recession. I believe government should act to initiate activity to attract private capital into the field.”
Business secretary Lord Mandelson welcomed Rowlands' recommendations.
Mandelson said: “It is now for government and the market to work together to address these issues effectively. It is vital that UK SMEs can secure the investment they need to grow.”
© Crimson Business Ltd. 2009