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Ex Ante Assessment of Financial Instruments

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Appendices Report - February 2014

DETI



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Table of Contents

Table of Contents

1 APPENDIX 1: KEY STAKEHOLDERS IN NORTHERN IRELAND .....................................................1

2 APPENDIX 2: BVCA INVESTMENT STAGE ANALYSIS BY REGION (UK) .....................................4

3 APPENDIX 3: EUROPEAN AND BRITISH FINANCIAL INSTRUMENTS ..........................................6

3.1 EUROPEAN FINANCIAL INSTRUMENTS .............................................................................................. 6

3.2 UNITED KINGDOM FINANCIAL INSTRUMENTS ................................................................................ 18

4 APPENDIX 4: EQUITY FINANCE IN NI ............................................................................................ 29

4.1 DESCRIPTION OF FUNDS IN NI INCLUDING TARGETS AND ACHIEVEMENTS ............................. 30

4.2 THE OUTPUTS: SKILLS AND ENTERPRISES, TURNOVER AND JOBS ........................................... 36

5 APPENDIX 5: FUND CHARACTERISTICS – COMPANY STAGE AND INVESTMENT POLICY .. 41

6 APPENDIX 6: FUNDING GAP TO DECEMBER 2020 AND TO DECEMBER 20203 ...................... 44

7 APPENDIX 7: EQUITY FINANCE GAP BY FUND AND INCL. PUBLIC/PRIVATE MATCH .......... 47

DETI



Appendices – page 1

1 APPENDIX 1: KEY STAKEHOLDERS IN NORTHERN IRELAND

Table 1:1: List of Consultees

Stakeholders Key Issues to be discussed

Northern Ireland (NI)

Alberta Pauley: DETI European Support Unit

(Chair)

Andrea Kelly: DETI European Support Unit

(Coordination & Secretariat)

Andrew Winter: DETI European Support

Unit

Fiona McCausland: DETI Business

Development Unit

Stephen Moore: DETI European Support

Unit (State Aid)

Evidence Gaps

EU Commission Regulations and any feedback from them on

papers submitted to date

Link between FIs and Government Economic, R+D and

Innovation.

Intervention logic for the existing funds/ new funds/ gaps

State Aid Rules and Updates

DETI: Innovation Ciaran McGarrity Innovation Policy and the role of Financial Instruments

Charles Hamilton: Invest NI European

Programmes

Helen Kirkpatrick: Invest NI Corporate

Finance

William McCulla: Invest NI Corporate

Finance

Research completed to date by Invest NI

Supply/ Demand Analysis- see below.

Lessons learned from the existing supports in place/ actions

being taken.

Additionality/ Deadweight/ Displacement of existing funds

Linkages to other supports

Impacts delivered / Areas for Development

InterTradeIreland: Eoin Magennis1 Evidence of Market Failures on a cross border basis/ Existing

supports/ Gaps in the Market/ Future options

Current VC and debt providers working in NI

e.g. Crescent Capital; Clarendon; Esynergy;

Whiterock Capital; Enterprise Equity, Kernel,

UCIT, Loughshore Investments and

Enterprise NI

Evidence of demand for existing supports- see below.

Supply analysis- see below

Impacts achieved/ differentiating the role of each support/

fund.

Levels of private investment/ projected future levels/ drivers

of future private investment

Needs for the future/ Outcomes to be expected/ rationale for

support/ Alignment with current market intermediaries/

Existing Private Investment and how we can ensure this is

not crowded out.

1 Finance for Growth Report – ITI recently published.

DETI





NI Banking representative – Gerry McGinn Building on the EAG review of bank finance- review the

market failures/ the gaps/ the options for the future

Loan Guarantee Scheme- low take up levels and rationale

for this/ factors driving take up levels/ areas for development

Feedback on gaps and to ensure bank finance is not being

crowded out.

Business Representatives- CBI/ IOD/FSB/

Chartered Institute of Accountants2 and

Chamber of Commerce3

Feedback on needs (supply/ demand market failures); gaps;

supports required.

University Representatives- UU- Tim Brundle

/ QUB- Scott Rutherford

Market failures in companies not investing sufficient in R+D+I

and the role of VC/ EQUITY/ finance supports

Best Practice supports elsewhere and supports required

Northern Ireland Science Park / AFBI/

MATRIX ( Bryan Keating suggested)

Market failures in companies not investing sufficient in R+D+I

and the role of VC/ EQUITY/ finance supports.

Best practice supports elsewhere and supports required in NI

to support R+D+I

United Kingdom (UK)

Business Innovation and Skills- Mark Collins-

Access to Finance and Scott O’Brien-

Business Bank; Gareth Ward

Department of Communities and Local

Government - John Horseman

FEI Manager

Review the extent to which UK Funds and financial

instruments are being taken up in NI and the reasons for any

underutilisation.

ERDF Programmes across UK- Any overlaps with Business

Growth Fund and the UK Co Investment Fund.

Scottish Investment Bank;

Enterprise Ireland and

Capital for Enterprise Ltd- Ken Cooper

Review of the different approaches to us re subordination/

preferential remuneration.

Mark Collins: DBIS;

Dr Sam White: DBIS;

Gareth Ward: DBIS;

Scott O’Brien: British Business Bank;

Ian Broadhurst: British Business Bank.

Background and implementation of range of European

financial instruments.

2 The Ulster Society completed a review of finance supports for early stage technology start-ups- comparing NI

supports with best practice supports across the world. - March 2013-completed by RSM MCCLURE WATTERS. 3 Member of EAG Panel

DETI





European Union (EU)

EU Commission- European Commission

DG Regio (Stephen Langley)

Roger Havenith - DG ECFIN.

Rachel Lancry - financial instruments unit

(REGIO/B/3: DG REGIO for the SME

initiative, or Aubin Bonnet

European Investment Bank – names to be

provided

European Investment Fund- names to be

provided

Application of EU Financial Instruments to address the

specific regional needs of Northern Ireland.

What is the Commission’s expectation of the use of FIs in

Northern Ireland?

Degree to which the proposed NI initiatives complement or

overlap with EC access to finance initiatives, including those

within the COSME and H2020 programmes, the proposed

EIB SME initiative and ESIF’s (off the shelf) instruments.

Stephen Langley: DG Regional Policy;

Rachel Lancry: DG Regional Policy;

Aubin Bonnet: DG Regional Policy;

Graham Cope: European Investment Bank;

Steven Rogers: Horizon 2020;

George Leonidas: COSME; and

Graham Cope; European Investment Fund.

Background and implementation of range of European

financial instruments.

DETI


Discussion Document of Findings from Strategic Review

February 2014


2 APPENDIX 2: BVCA INVESTMENT STAGE ANALYSIS BY REGION (UK)

Table 2:1: Investment Stage Analysis by Region (UK) – Number of Companies4

Region Venture Capital Expansion5 Replacement Capital

6 MBO

7 / MBI

8 Other Stage

Number %9 Number % Number % Number % Number %

2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010

Scotland 32 18 24 7 4 6 32 19 25 11 6 4 3 4 4 7 11 10 3 4 6 3 4 6 1 4 3 4 13 12

Wales 24 32 26 6 8 7 6 2 13 2 4 7 2 0 1 5 0 3

5

7 2

5

8 2 3 2 1 12 7 4

Northern Ireland

24 10 14 6 2 4 3 3 6 1 1 2 0 0 1 0 0 3 0 1 0 1 1 1 1 4 3 4

Notes:

1. Some regions have been amalgamated where there are instances of single deals, in order to preserve confidentiality.

4 BCVA, Private Equity and Venture Capital Report on Investment Activity 2012 (2013). Note: The BVCA data does not present a comprehensive picture of investment activity in

Northern Ireland as not all local providers are BVCA members and investment activity from non-UK funds is also excluded. 5 Sometimes known as ‘development’ or ‘growth’ capital, provided for the growth and expansion of an operating company which is trading profitably. Capital may be used to

finance increased production capacity, market or product development, and/ or to provide additional working capital. 6 Minority stake purchase from another private equity investment organisation or from another shareholder or shareholders.

7 Management buyout (MBO): Funds provided to enable current operating management and investors to acquire an existing product line or business. Institutional buyouts (IBOs),

leveraged buyouts (LBOs) and other types of similar financing are included under MBOs for the purposes of this report. 8 Management buy-in (MBI): Funds provided to enable an external manager or group of managers to buy into a company.

9 Refers to % of UK companies

DETI


Discussion Document of Findings from Strategic Review

February 2014


Table 2:2: Investment Stage Analysis by Region (UK) – Amount Invested (UK)10

Region Venture Capital Expansion Replacement Capital MBO / MBI Other Stage

Amount (£m) % Amount (£m) % Amount (£m) % Amount (£m) % Amount (£m) % 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010 2012 2011 2010

Scotland 23 9 17 7 3 5 94 40 31 6 2 2 2 260 54 - 20 6 40 23 25 1 1 1 - 2 38 - 1 7

Wales 9 8 8 3 2 2 9 10 8 1 1 1 5 0 - - 0 -

36

34 12

1

1 - 35 6 10 25 2 2

Northern Ireland

2 20 5 1 6 2 1 0 7 - 0 - 0 0 - 0 0 - 0 151 0 3 0 - - 0 - -

Notes:

1. Some regions have been amalgamated where there are instances of single deals, in order to preserve confidentiality.

2. - indicates a value greater than 0 but less than 0.5

10

BCVA, Private Equity and Venture Capital Report on Investment Activity 2012 (2013). Note: The BVCA data does not present a comprehensive picture of investment activity in Northern Ireland as not all local providers are BVCA members and investment activity from non-UK funds is also excluded.

DETI




3 APPENDIX 3: EUROPEAN AND BRITISH FINANCIAL

INSTRUMENTS

3.1 European Financial Instruments

Within this section the following instruments are reviewed in detail:

COSME (Equity and Guarantee);

Horizon 2020 (Equity and Guarantee);

Creative Europe Guarantee;

Social Change and Innovation;

Erasmus for all;

JASMINE;

JEREMIE;

JESSICA; and

SME Initiative (Guarantee and Securitisation).

COSME 3.1.1

Intervention

Name

Description Relevance/Suitability to Northern

Ireland

COSME: This is the EU Programme for the Competitiveness of Enterprises and Small and Medium Sized

Enterprises (SMEs) running from 2014 to 2020 and has the following objectives:

Better access to finance for SMEs

Access to markets

More favourable conditions for business creation and growth.

COSME will facilitate and improve access to finance for SMEs through two different financial instruments,

available from 2014.

COSME –

Loan

Guarantee

Facility

Nature of Intervention: The COSME project

will fund guarantees and counter

guarantees for financial intermediaries (e.g.

guarantee organisations, banks, leasing

companies) to help them provide more loan

and lease finance to SMEs. This facility will

also include securitisation of SME debt

finance portfolios.

By sharing the risk, the COSME guarantees

will allow the financial intermediaries to

expand the range of SMEs they can

finance. This will facilitate access to debt

finance for many SMEs who might

Fit with ERDF Objectives: Fits with Priority

Theme 2: Enhancing the Competitiveness of

SMEs.

Key Market Failures: Coordination

Failure: The region is unable to coordinate

the level of demand necessary for such an

intervention. Feedback from the European

Commission and confirmed by the Northern

Ireland banking sector, is that at least 50

companies are necessary to warrant the

development of a guarantee scheme. The

thinness11

of the Northern Ireland market is

such that indigenous financial intermediaries

11

NESTA and the British Venture Capital Association (BCVA) ‘From funding gaps to Thin Markets. UK Government Support for Early Stage Venture Capital

DETI




Intervention

Name


Ireland

otherwise not be able to raise the funding

they need.

Scale of overall budget: Eur 746m

Scale of support on offer: €150,000 to the

SME

Target market: High growth SMEs.

Sectoral approach preferred, but not

essential.

Implementation Model: Delivered by EIF

but the COSME Basic Act also foresees the

possibility of implementation by other

entrusted entities such as regionally based

financial intermediaries (such as banks).

COSME acts by guaranteeing loan

categories in client financial intermediaries.

do not have the capacity (in either scale and

previous experience of using guarantees) to

work in conjunction with COSME. The

coordination failure therefore arises due to

the lack of critical mass in Northern Ireland to

warrant developing such an intervention.

Implementation Issues: The EAG report12

(and verified by an interview with an EC

official13

) noted that under the previous

programme period NI banks did not avail of

any guarantee programmes. The rationale

provided was that such a risk mitigation tool

(such as guarantees and securitisation) was

deemed inappropriate for the diversified loan

structure of the local clearing banks (that is

they were not sufficiently exposed to one

asset type to warrant the use of a guarantee

scheme). In addition, the proposed set-up

costs were deemed to be prohibitive (EAG

report and interview with banking

representative). Finally, it was noted by the

Commission official that the UK as a whole,

did not avail of similar securitisation products

under the previous funding period. It was the

European Commission’s contention that the

product better suited specialist business

banks which operate in countries such as

Germany and France and who may need to

use guarantees/securitisation to ensure that

the higher risk elements of their loan portfolio

are addressed.

Verdict: It is our view that this product is not

appropriate for the Northern Ireland market.

COSME:

Equity Facility

for Growth

The COSME programme will also provide

venture capital and mezzanine support to

expansion and growth stage SMEs, with a

particular focus on encouraging financial

intermediaries to operate on a cross border

basis.

Consultation with the European

Commission has identified that the

anticipated user groups for the intervention

are financial intermediaries who support


Theme 2: Enhancing the Competitiveness of

SMEs.

Key Market Failures: Coordination failures:

The region is unable to coordinate the level

of demand necessary for such an

intervention. Feedback from the

Commission has indicated that an optimal

size of equity fund is in excess of £100

million (with approximately £50million coming

12

EAG: Review of Access to finance for NI businesses, March 2013 13

EC official identified that UK did not avail of any securitisation products in previous programme period. In addition, the intervention was deemed as being more appropriate to the financial ecosystem in countries such as Germany, Italy and France who have specialist SME banks.

DETI




Intervention

Name


Ireland

sector initiatives (and therefore have the

scale to warrant involvement in the

programme).

Scale of overall budget: Eur 690m

Scale of support on offer: €150,000 per

company.

Target market: Growth Stage for SMEs,

also covering early stage interventions up

to 20% of total EU investment. Sectoral

approach preferred, but not essential.

Implementation Model: Operated by EIF but

typically delivered via financial

intermediaries (mutual guarantee societies,

banks, funds) on behalf of the European

Commission. With the EIF providing

match funding.

from the applicant region). The perceived

thinness/lack of critical mass of the Northern

Ireland market therefore does not warrant the

development of an intervention which brings

with it significant administrative overheads

(both in time and direct costs) in programme

set up.

In addition, the present funding gap/lack of

private sector investment14

would be

exacerbated by the continued need for

subordination of private sector equity/loan

providers c to European institutions.

Implementation Issues: Northern Ireland

does not have the critical mass (i.e. a need

for an equity pot in excess of £100m) to

warrant a regional approach to using the

fund, neither does it have a significant

sectoral presence to join an existing cross

border consortia.

Verdict: The thinness of the local market

and concerns regarding subordination mean

that this intervention is deemed to be

inappropriate as to the needs of the Northern

Ireland economy.

Horizon 2020 3.1.2

Intervention

Name


Ireland

Horizon 2020 is the financial instrument implementing the Europe 2020 flagship initiative

‘Innovation Union’ and is the principal tool for the promotion of research, development and

innovation. It has an €80bn budget.

Under the Horizon 2020 programme a facility for debt ('Debt facility'), and a facility for equity

('Equity facility') will support SMEs, start-ups and small Mid-cap companies as well as universities

involved in research, development and innovation based on the lessons learned from the current

Risk Sharing Finance Facility (RSFF) and Risk Sharing Instrument (RSI) schemes.

Horizon 2020

–

Equity Facility

for R&I

The equity facility for R&I is aimed at

funding the R&I equity needs of early stage

companies. However it is mainly designed

to be utilised by universities/centres of

excellence which have a high number of

spin outs which need equity support for

Fit with ERDF Objectives: The Horizon 2020

is orientated towards funding applied

research and is therefore more closely

aligned with Priority 1 Thematic 1:

Strengthening Research, technological

development and innovation. However,

14

BCVA data cited in the Economic Advisory Group (EAG) Review of Access to Finance for Northern Ireland businesses (March 2013) stated that the level of equity support to Northern Ireland companies accounts for just 0.3% of the UK total, which is significantly below the regional level of company need.

DETI




Intervention

Name


Ireland

R&Di. Accompanying measures supported

through Horizon 2020 include:

Technical assistance for financial

intermediaries;

Investment-readiness schemes

(incubating, coaching and mentoring);

Raising awareness of VC firms and

business angels; and

Encouraging philanthropic

foundations/individuals to support

R&Di.

Under the previous programme period

the intervention was mainly taken up

by larger Universities and centres of

excellence across Europe. Feedback

from the Commission expects this to

be the same for this funding period.

Scale of overall budget: Eur 3.768Bn

Scale of support on offer: At least one

third likely (Eur1.3bn) to be absorbed

by SMEs and small midcaps (no

breakdown between equity and debt).

Target market: Focus on early stage

growth oriented SMEs and covering

early stage investments up to 20% of

total EU investment.

Implementation Model: Operated by

EIF but typically delivered via financial

intermediaries (mutual guarantee

societies, banks, funds) on behalf of

the European Commission. In most

cases the equity support is placed into

a holding fund within the chosen

financial intermediary.

there is still an opportunity for the

intervention to support Priority 2: Theme 3

and enable SMEs to have easier access to

finance.

Key Market Failures: Coordination Failure:

The region is unable to coordinate the level

of demand necessary for such an

intervention Northern Ireland companies do

need to invest in R&Di and this is supported

under the intervention, however the EIF has

confirmed that there is an optimal size of

equity fund, which is in excess of £100

million (with approximately £50million coming

from the applicant region). The perceived

thinness/lack of critical mass of the Northern

Ireland market therefore does not warrant the

development of an intervention which brings

with it significant administrative overheads

(both in time and direct costs) in programme

set up.


does not have sufficient centres of

excellence and/or universities to warrant a

programme with an anticipated budget in

excess of £100m.

Verdict: Although the intervention would

provide opportunities for addressing

absorptive capacity (particularly through

access to cross border networks, the

thinness of the local market (i.e. not capable

of supporting an R&DI equity budget of

£100m) and concerns regarding

subordination mean that this intervention is

deemed to be inappropriate as to the needs

of the Northern Ireland economy.

Horizon

2020-

Guarantee

Facility for

R&I

Loans and guarantees for research

and development related organisations

(non SMEs). However, it is mainly

designed to be utilised by

universities/centres of excellence

which have a high number of spin outs

which need equity support for R&Di.

Accompanying measures supported

Fit with ERDF Objectives: The Horizon

2020 is orientated towards funding applied

research and is therefore more closely

aligned with Priority 1 Thematic 1:

Strengthening Research, technological

development and innovation. However,

there is still an opportunity for the

intervention to support Priority 2: Theme 3

and enable SMEs to have easier access to

DETI




Intervention

Name


Ireland

through Horizon 2020:

Technical assistance for financial

intermediaries;

Investment-readiness schemes

(incubating, coaching and mentoring);

Raising awareness of VC firms and

business angels; and

Encouraging philanthropic

foundations/individuals to support

R&Di.

This has mainly been taken up by

larger Universities and centres of

excellence across Europe.

Scale of overall budget: Eur 746milion

Scale of support on offer: Over

€150,000

Target market: Focus on early stage

growth oriented SMEs and covering

early stage investments up to 20% of

total EU investment.


EIF but typically delivered via financial

intermediaries (mutual guarantee

societies, banks, funds) on behalf of

the European Commission. Horizon

2020 acts by guaranteeing loan

categories in client financial

intermediaries.

finance.

Key Market Failures: Coordination

Failure: The region is unable to coordinate

the level of demand necessary for such an


Commission and confirmed by the Northern

Ireland banking sector, is that at least 50


development of a guarantee scheme. This

situation is further exacerbated by the

requirement for the guarantees to relate to

R&Di, which given Northern Ireland’s low

innovation rate, reduces the scale of the

target group. Therefore the thinness of the

Northern Ireland market is such that

indigenous financial intermediaries do not

have the capacity (in either scale and

previous experience of using guarantees) to

work in conjunction with COSME. The


the lack of critical mass in Northern Ireland to

warrant developing such an intervention.

Implementation Issues: The EAG report15

(and verified by interview EC official16

) noted

that under the previous programme period

that NI banks did not avail of any guarantee

programmes. The rationale provided was

that such a risk mitigation tool was deemed

inappropriate for the diversified loan structure

the local clearing banks used. In addition,

the proposed set-up costs were deemed to

be prohibitive (EAG report and interview with

banking representative).

Verdict: It is our view that this product is not

appropriate for the Northern Ireland market.

Creative Europe Guarantee Facility 3.1.3

Intervention Name Description Relevance/Suitability to Northern

Ireland

Creative Europe

Guarantee Facility

The aim of the intervention is to

facilitate access by SMEs to private

sector funding through guarantees


Theme 3: Enhancing the Competitiveness

of SMEs.

15

EAG: Review of Access to finance for NI businesses, March 2013 16

Lack of take up of guarantees by Northern Ireland banks.

DETI





Ireland

which could generate more than €

1bn in loans.

Scale of overall budget: Eur 1billion

Scale of support on offer: Not

applicable

Target market: The Culture and

Creative Sector Facility’ offers loan

guarantee instruments to support

SMEs in the media and creative

sector (integrated with COSME and

Horizon 2020).


DG ECFIN but typically delivered via

financial intermediaries (mutual

guarantee societies, banks, funds)

on behalf of the European

Commission. DG ECFIN acts by

guaranteeing loan categories in

client financial intermediaries.

Addressing Key Market Failures:

Coordination failures: The region is

unable to coordinate the level of demand

necessary for such an intervention. Due to

the tighter sectoral focus of this

intervention (Creative industries), it would

seem highly unlikely that the emerging

creative industries sector would be of a

suitable scale to warrant the utilisation of

such a Guarantee Scheme. As noted by

the European Commission and confirmed

by the Northern Ireland banking sector, it

is considered essential that at least 50


development of a guarantee scheme.

Implementation Issues: The guarantee

facility scheme planned as part of the

Creative Europe framework is not

expected to begin fully operating until

2016. In addition, the Northern Ireland

economy does not have the scale of

sectoral coverage to warrant the

development costs of such an intervention.

Verdict: This is not deemed to be

appropriate as Northern Ireland does not

have the critical mass within the sector to

warrant investment in the intervention.

Social Change and

Innovation

(Micro Finance)

The new programme will: extend the

support given to microcredit

providers under the current

European Progress Microfinance

Facility (launched in 2010) and

provide funding for capacity building

of microfinance institutions and

support the development of the

social investment market.

Scale of overall budget: Eur

171million


available.

Target market: Provide funding for

capacity building of microfinance

institutions and support the

development of the social investment

market.

Fit with ERDF Objectives: The

intervention does not fit with ERDF

objectives as it is aimed at supporting the

emerging social economy sector. This is

not covered by Objectives 2 or 3.

Key Market Failures: Not applicable as it

does not fit with the ERDF objectives.

Implementation Issues: Not applicable as it

does not fit with the ERDF objectives.

Verdict: Not applicable as it does not fit

with the ERDF objectives.

DETI





Ireland


EIF but typically delivered via




Commission.

ERASMUS for All 3.1.4

Intervention

Name


Ireland

ERASMUS

for All

(Guarantee

facility)

The Commission has proposed a

student loan guarantee facility for the

‘Erasmus for All’ programme

Scale of overall budget: Eur 880

million

Scale of support on offer: Up to

€150,000

Target market: Helping students who

would not otherwise have had access

to appropriate funding to finance their

studies abroad.


EIF.

Fit with ERDF Objectives: This is

considered ineligible for support as it

relates to support for training, which is

not permissible under ERDF.


does not fit with ERDF objectives.

Implementation Issues: Not applicable

as it does not fit with ERDF objectives.


with ERDF objectives.

Connecting

Europe

Facility

(CEF)

The CEF is the financing instrument for

the Trans-European Networks for

Transport, Energy and

Telecommunications.

Scale of overall budget: For the new

financing period (2014-2020), the

Commission has proposed to allocate

€50bn - €31.6bn for transport

infrastructure (including €10bn ring

fenced from the Cohesion fund),

€9.1bn for Energy and €9.2bn for

telecommunications.


applicable

Target market: Support for transport,

energy and telecommunications

Fit with ERDF Objectives: This is

considered ineligible for support as it

relates to support for infrastructural

development, which is not being

supported under next round of funding in

Northern Ireland.



Implementation Issues: Not applicable

as it does not fit with ERDF objectives.



DETI




Intervention

Name


Ireland

infrastructure.


EIF.

Joint Action to Support Microfinance Institutions in Europe (JASMINE) 3.1.5


Ireland

Joint Action to Support

Microfinance

Institutions in Europe

(JASMINE)

“A European initiative for the

development of micro-credit in

support of growth and employment”.

The instrument aims to assist micro

finance institutions outside the

banking sector in the EU to help

these providers reach financial

standing and sustainability in the

medium term and be considered

eligible as financial intermediaries in

the Member States and regions.

Scale of overall budget: Eur

1.2billion


relevant

Target market: Tailored for micro-

enterprises and for socially excluded

people (including ethnic minorities)

who want to go into self-

employment, but do not have access

to traditional banking services. This

initiative focuses on this 'non-

bankable' segment of the market.



financial intermediaries on behalf of

the European Commission.



objectives as it is aimed at supporting the

emerging social economy sector. This is

not covered by Objectives 2 or 3.



Implementation Issues: Not applicable as it




Joint European Resource for Micro to Medium Enterprises (JEREMIE) 3.1.6


Ireland

Joint European

Resource for Micro to

Medium Enterprises

The intervention is designed to

improve access to finance for

medium, small and micro



of SMEs.

DETI





Ireland

(JEREMIE)

enterprises, in particular through the

supply of venture capital, loans,

guarantees, micro-credit and other

forms of innovative financing.

Scale of overall budget: Subject to

negotiation


applicable.

Target market: The JEREMIE

Holding Fund can provide, to

selected financial intermediaries,

SME focused financial instruments

including guarantees, co-guarantees

and counter-guarantees, equity

guarantees, (micro) loans, export‑

credit insurance, securitisation,

venture capital, Business Angel

Matching Funds and investments in

Technology Transfer funds.






Commission. In most cases the

equity support is placed into a

holding fund within the chosen

financial intermediary.

Key Market Failures: Coordination failures:

The region is unable to coordinate the

level of demand necessary for such an

intervention. Feedback from the

Commission has indicated that an optimal

size of equity fund is in excess of £100

million (with approximately £50million

coming from the applicant region). The

perceived thinness/lack of critical mass of

the Northern Ireland market therefore does

not warrant the development of an

intervention which brings with it significant

administrative overheads (both in time and

direct costs) in programme set up.


does not have the critical mass to warrant

a regional approach to using the fund,

neither does it have a significant sectoral

presence to join an existing cross border

consortia.

Verdict: The thinness of the local market

and concerns regarding the lack of clarity

regarding subordination mean that this

intervention is deemed to be inappropriate

as to the needs of the Northern Ireland

economy.

Joint European Support for Sustainable Investment in City Areas 3.1.7

(JESSICA)

Intervention

Name


Ireland

A Joint

European

Support for

Sustainable

Investment in

City Areas

(JESSICA).

“A JESSICA is an initiative of the

European Commission developed in co-

operation with the European Investment

Bank (EIB) and the Council of Europe

Development Bank. It supports sustainable

urban development and regeneration

through financial engineering mechanisms

Scale of support on offer: Not relevant

Target market: JESSICA promotes

sustainable urban projects in the following



objectives as it is aimed at supporting

infrastructural development.



Implementation Issues: Not applicable as

it does not fit with ERDF objectives.


DETI




Intervention

Name


Ireland

areas:

Urban infrastructure: including transport,

water/waste water and energy;

Heritage or cultural sites: for tourism or

other sustainable uses;

Redevelopment of brownfield sites:

including site clearance and

decontamination; and

Creation of new commercial floorspace for

SMEs, IT and/or R&D sectors.

Implementation Model: Contributions from

ERDF area allocated to Urban

Development Funds which invest them in

public-private partnerships or other projects

included in an integrated plan for

sustainable development. These

investments can take the form of equity,

loans and/or guarantees. Alternatively,

managing authorities can decide to channel

funds to UDFs using Holding Funds (HFs)

which are set up to invest in several UDFs.

This is not compulsory, but does offer the

advantage of enabling managing authorities

to delegate some of the tasks required to

implement JESSICA to expert

professionals.


SME Initiative Uncapped Guarantee 3.1.8


Ireland

SME Initiative

Uncapped Guarantee

The objective of the SME initiative is

primarily to provide access to finance

to SMEs, as well as to mitigate the

effects of obligatory deleveraging of

balance sheets required by the

regulatory requirements which would

otherwise work against any such

increase in access to finance for

SMEs.

Scale of overall budget: Currently

unspecified.

Scale of support on offer: The



of SMEs.





Investment Bank (EIB) and confirmed by

the Northern Ireland banking sector, is that

between 50-200 companies are necessary

to warrant the development of a guarantee

scheme. The thinness of the market is

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Ireland

uncapped guarantee foresees a

defined guarantee rate, covering

100% of the guarantee portion. The

guarantee rate is envisaged at 80%

with the remaining 20% coming from

the financial intermediary (bank).

Target market: The uncapped

guarantee under the SME initiative is

a crisis instrument, responding to the

urgent need to kick start the SME

lending market in the current

regulatory environment. The capped

guarantee under COSME should be

seen as the ‘default instrument’.


EIF, but delivered by banks in

eligible regions. There is the

opportunity for match funding from

ERDF (and with no need for a

matching national contribution) in

addition to EIF support.

such that indigenous financial

intermediaries do not have the capacity (in

either scale and previous experience of

using guarantees) to work with EIB. The


the lack of critical mass in Northern Ireland

to warrant developing such an

intervention.

Implementation Issues: The EAG report


official and also an EIB official) noted that

under the previous programme period NI

banks (in common with the rest of the UK,

Republic of Ireland and Denmark (in which

all NI banks have their headquarters

located in) did not avail of any guarantee


that such a risk mitigation tool (such as

guarantees and securitisation) was

deemed inappropriate for the diversified

loan structure of the local clearing banks

(that is they were not sufficiently exposed

to one asset type to warrant the use of a

guarantee scheme). In addition, the

proposed set up costs were deemed to be

prohibitive (EAG report and interview with

banking representative).

It was the EIB’s contention that the product

better suited banks which had both the

scale of companies and the level of

exposure to high risk SMEs.

Verdict: It is our view that this product is

not appropriate for the Northern Ireland

market.

Securitisation Window

under the SME

Guarantee Facility.

The objective is to facilitate access

to capital markets for unrated or low

rated institutions such as smaller

banks and find alternative solutions

to allow financial intermediaries to

circulate funding in the SME market

Scale of overall budget: Currently

unspecified.

Target market: The aim of the CIP

Securitisation product is to generate

additional financing for SME’s, hence

it combines an unconditional and



of SMEs.





Investment Bank (EIB) and confirmed by

the Northern Ireland banking sector that

between 50-200 companies are necessary

to warrant the development of a guarantee

scheme. The thinness of the market is

such that indigenous financial

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Ireland

irrevocable guarantee on an existing

portfolio of loans at a market level

guarantee fee with a separate

undertaking to build up a new

portfolio of SMEs loans (under a

separate additional portfolio

agreement). In exchange for the EU

Guarantee, originators undertake to

create a new portfolio of SME

financing during an agreed period

(known as the additional portfolio).

The additional portfolio must contain

medium or long term financing to

SMEs. In case the targeted volume

of the additional portfolio is not

achieved, a commitment fee would

become due, while the guarantee on

the securitisation transaction would

remain in place.


EIF, but delivered by banks in

eligible regions. There is the

opportunity for match funding from

ERDF (and with no need for a

matching national contribution) in

addition to EIF support.

intermediaries do not have the capacity (in

either scale and previous experience of

using guarantees) to work with EIB. The


the lack of critical mass in Northern Ireland

to warrant developing such an

intervention.

Implementation Issues: The EAG report


official and also an EIB official) noted that

under the previous programme period NI

banks (in common with the rest of the UK,

Republic of Ireland and Denmark (in which

all NI banks have their headquarters

located in) did not avail of any guarantee


that such a risk mitigation tool (such as

guarantees and securitisation) was

deemed inappropriate for the diversified

loan structure of the local clearing banks

(that is they were not sufficiently exposed

to one asset type to warrant the use of a

guarantee scheme). In addition, the

proposed set up costs were deemed to be

prohibitive (EAG report and interview with

banking representative). Finally, there

was a concern regarding the application of

the commitment fee, particularly given the

uncertainty over level of demand in

Northern Ireland.

It was the EIB’s contention that the product

better suited banks which had both the

scale of companies and the level of

exposure to high risk SMEs.

Verdict: It is our view that this product is

not appropriate for the Northern Ireland

market.

DETI




3.2 United Kingdom Financial Instruments

Enterprise Finance Guarantee;

Enterprise Capital Funds;

Business Finance Partnership;

Business Bank (from August 2012 the bank will be delivering: start up loans,

Enterprise finance Guarantee, Business Finance Partnerships, Enterprise Capital

Funds, Business Angel Co-investment fund , UK Innovation and Investment Fund and

Aspire); and

HMRC (including Enterprise Investment Scheme, Seed Investment Scheme, Venture

Capital Trust Scheme, Share Loss Relief and Corporate Venturing Scheme).

Enterprise Finance Guarantee (EFG) 3.2.1

Intervention

Name

Description Relevance/Suitability to

Northern Ireland

Enterprise

Finance

Guarantee

(EFG)

The EFG is a UK government national loan

guarantee scheme to facilitate additional

bank lending to viable SMEs with

insufficient or no security with which to

secure a normal commercial loan. As is

noted below, the new Business Bank will

be responsible for the subsequent delivery

of the EFG from August 2014.

Scale of support on offer: It provides

lenders with a Government backed

guarantee for 75% of the loan value. The

borrower pays a 2% annual premium that

partially covers the cost of providing the

guarantee.

Target market: The EFG provides loans

of between £1,000 and £1milion to viable

businesses with an annual turnover of up

to £41million.

Implementation Model: The EFG is

delivered by 46 accredited lenders

Including all main UK High Street Banks,

Community Development Finance

Institutions (CDFIs) and invoice providers

on a discretionary basis and can facilitate

loans, overdrafts and invoice finance,

including new lending and re-financing. All

Fit with ERDF Objectives: Not

eligible for match funding, but

does fit with Priority Theme 2:

Enhancing the Competitiveness

of SMEs.

Key Market Failures:

Coordination Failure: Published

research such as the 2011

InterTradeIreland report17

highlighted that awareness of the

EFG in Northern Ireland was low

(just 17% of businesses had

heard of it). Just 3 out of 523

businesses they surveyed had

actually used it.

Implementation Issues:

Although all of the main Northern

Ireland banks participate in the

Scheme, Northern Ireland’s

uptake is low compared to other

regions. According to the EAG

Report18 since its inception the

ratio of the number of loans

drawn down per 10,000

businesses is 14.5 for Northern

Ireland compared to 36.2 for the

UK, ranking Northern Ireland

17

Quarterly Business Monitor, Quarter 3, 2011, InterTradeIreland. 18

Economic Advisory Group: Review of Access to finance for NI businesses (March 2013)

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Intervention

Name


Northern Ireland

lending decisions are made by the lender. lowest of the UK regions by some

considerable margin. The

Government’s delivery agent,

Capital for Enterprise identified

the following as being reasons

why the intervention was not

successful in Northern Ireland,

including:

The EFG is not small lender

friendly. The intervention is

structured with an annual claim

limit as a percentage of the

lending provided in any one year.

Banks need to build a portfolio of

lending to make this worthwhile.

Northern Ireland banks did not

have the critical mass to warrant

inclusion on the scheme.

Northern Ireland has fewer

businesses that can access the

Scheme. The view has always

been made that Northern

Ireland’s access to the

intervention is low because it has

fewer large SMEs which more

typically use the EFG and fewer

businesses in eligible sectors.

Verdict: Although the

intervention has been previously

used in Northern Ireland, the

thinness of the market and the

relatively small size of the banks

restricts its potential usefulness.

DETI




Enterprise Capital Funds (ECF) 3.2.2

Intervention

Name


Northern Ireland

Enterprise

Capital Funds

(ECF)

Enterprise Capital Funds are financial

schemes established by BIS to address a

market weakness in the provision of equity

finance to UK SMEs. In Britain, ECFs

operate as private companies that back

privately raised capital with Government-

guaranteed leverage. They then finance

investments in qualifying small businesses,

and the profits are shared with the

Government.

Scale of overall budget: The Government

announced in November 2010 that it would

continue the programme of Enterprise

Capital Funds, increasing its commitment

by £200 million until the 2014-15 financial

year and providing more than £300 million

of investment into the equity gap for early

stage innovative SMEs with the highest

growth potential after taking private sector

contributions into account.

Scale of support on offer: Government

funding is used alongside private sector

funds to establish funds that operate within

the ‘equity gap’; targeting investments of

up to £2m that have the potential to

provide a good commercial return.

Target market: Enterprise Capital Funds

are available to high-growth small

businesses (exceptional growth if a start-

up) that have potentially viable expansion

plans. This means small to medium-sized

businesses with a turnover typically less

than £10 million located anywhere in the

United Kingdom.

Implementation Model: ECFs are

commercially viable managed venture

capital funds operating in the equity gaps

that provide equity finance to high growth





of SMEs.

Key Market Failures: Enterprise

Capital Funds (ECFs) address a

market weakness in the provision

of equity finance to SMEs by

using Government funding

alongside private sector

investment to establish funds that

operate within the ‘equity gap’. An

equity gap arises where

businesses with viable investment

propositions are unable to attract

investment from informal

investors or venture capitalists. In

bridging this gap, ECFs aim to

alleviate what would otherwise

present a significant barrier to

enterprise and to productivity

growth.

Twelve such funds have been

launched since 2006.

Implementation Issues: There

is a low take up of these funds by

Northern Ireland firms, due to the

following two reasons19

:

Insufficient awareness of the

programme in Northern Ireland;

and

Insufficient awareness of

opportunities in Northern Ireland

by GB based venture capital

firms.

Both of these factors are related

19 DBIS Early Assessment of the Impact of BIS Equity Fund Initiatives: July 2010

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Intervention

Name


Northern Ireland

potential SMEs initially seeking up to £2m

of finance. The Government provides

around two thirds of the capital, with the

remainder being raised from private sector

sources. ECF’s provide finance to SMEs

and contribute non-financial benefits such

as improved corporate management,

improved networking to customers and

suppliers and also access to further

investors.

to the lack of critical mass of

eligible companies in Northern

Ireland to warrant the attention of

GB based venture capital firms.

The EAG report states that a

portfolio of 50 companies SMEs

would be necessary to attract

interest.

Verdict: The intervention has a

very low take up rate in Northern

Ireland, the thinness of the

market and the relatively small

number of eligible firms restricts

its potential usefulness.

Business Finance Partnership (BFP) 3.2.3

Intervention

Name


Northern Ireland

Business

Finance

Partnership

(BFP)

The Business Finance Partnership (BFP)

Small Business Tranche. The BFP aims to

both increase the supply of capital through

non-bank channels and in the longer term,

to help diversify the sources of finance

available to businesses.

Scale of overall budget: BIS will invest

up to £100million if the BFP through non

traditional lending channels that lend

directly to small businesses. It is expected

that these channels will include mezzanine

finance funds, supply chain finance

schemes and peer to peer lenders.

Target Market: Increase non-traditional

finance such as peer-to-peer lending,

supply chain finance and mezzanine

finance for businesses with a turnover

below £75 million.

Implementation Model: Backed by HM

Treasury, the Business Finance

Partnership (BFP) aims to increase the

supply of capital through non-bank lending

channels and, in the longer term, to help to





of SMEs.

Key Market Failures: Business

Finance Partnership address a


of equity finance to SMEs by

using Government funding

alongside private sector


operate within the ‘equity gap’.

An equity gap arises where





bridging this gap, BFPs aim to




growth. Twelve such funds have

been launched since 2006.

DETI




Intervention

Name


Northern Ireland

diversify the sources of finance available to

businesses. The current fund managers

are Alcentra Limited, Haymarket Financial,

M&G Investment Management and Pricoa

Capital. Under Tranche 2 seven different

lenders will received £85 million of

government investment and will lend more

than £240 million to small businesses by

attracting matching private sector

investment. Prospective small business

borrowers should contact these lenders

directly.


is a low take up of these funds by

Northern Ireland firms, in

common with regions in the North

of England. The CfEL Aggregate

Equity Scheme Data, July 2013

highlights the geographic

distribution of the investments

largely follows the wider VC

industry and thereby supports the

coordination failure between

Northern Ireland and the existing

Venture Capital Networks in

Great Britain.







UK Innovation Investment Fund 3.2.4

Intervention

Name


Northern Ireland

UK Innovation

Investment

Fund

UKIIF is a venture capital fund of funds

that aims to drive economic growth and

create highly skilled jobs by investing in

innovative businesses where there are

significant growth opportunities.

Target Market: The underlying funds

within the UKIIF fund of funds invest in

technology based businesses in

strategically important sectors to the UK

including digital technologies, life sciences,

clean technology and advanced

manufacturing.

Implementation Model: UKIIF operates as

two funds of fund investing in UK

government funds with other private

investors into selected specialist VC funds

in the UK and Europe. The Hermes

Environmental Innovation Fund has a





of SMEs.

Key Market Failures: UKIIF

address a market weakness in

the provision of equity finance to

SMEs by using Government

funding alongside private sector


operate within the ‘equity gap’. An

equity gap arises where





bridging this gap, UKIF aims to

DETI




Intervention

Name


Northern Ireland

value of £130m consisting of £50m UK

Government and £80m of private

investment and focuses on efficient use of

resources and clean technologies for a low

carbon economy. The European

Investment Fund’s UK Future

Technologies Fund has a value of £200m,

consisting of £100m UK government

investment and £100m of European

Investment Bank investment and focuses

on life sciences, digital technology and

advanced manufacturing sectors. UKIIF is

at present administered by Capital for

Enterprise Ltd (CfEL) before transferring to

the British Business Bank.




growth.


is no take up20

of these funds by

Northern Ireland firms, due to the

following two reasons

Insufficient awareness of the

programme in Northern Ireland;

and

Insufficient awareness of

opportunities in Northern Ireland

by GB based venture capital

firms.

Both of these factors are related

to the lack of critical mass of

eligible companies in Northern

Ireland to warrant the attention of

GB based venture capital firms.







Business Angel Co-Investment Fund 3.2.5

Intervention

Name


Northern Ireland

Business Angel

Co-Investment

Fund

The £50million Business Angel Co-

investment fund aims to support angel

investments into high growth potential

early stage SMEs, particularly in areas

worst affected by public spending cuts.

Target Market: The fund has been created

with a grant from the Regional Growth

Fund and is able to make initial equity

investments of between £100k and





of SMEs.

Implementation Issues: This

intervention is only for England.

Verdict: Not applicable to

20

BIS UK Early Assessment of the UK Innovation Investment Fund

DETI




Intervention

Name


Northern Ireland

£1million in to SMEs alongside syndicates

of business angels (subject to

geographical restrictions and upper limit of

49% of any investment round). Investment

decisions.

Implementation Model: The fund has been

designed and established by a consortium

of private and public bodies with expertise

in business angel investment. It is a

private sector body with clear objectives to

boost the quality and quantity of business

angel investing in England and to support

long term, high quality jobs in high growth

companies.

Northern Ireland.

Business Bank 3.2.6

Intervention

Name


Northern Ireland

Business Bank The British Business Bank was launched in

interim form in October 2013 and is

operating out of the Department for

Business Innovation and Skills (BIS).

Business Bank will become operationally

independent once state aid clearance is

received, and is expected in the second

half of 2014. The British Business Bank

supports a range of debt and equity

solutions, working alongside the private

sector.

Target market: The British Business

Bank supports smaller businesses across

the UK The Bank will deliver existing debt

solutions such as:

Enterprise Finance Guarantee (EFG);

and

Business Finance Partnership (BFP).

In addition, the bank will support 2 new

debt interventions including:

The £300m Investment Programme





of SMEs.

Key Market Failures: The

British Business Bank aims to

deliver a number of existing

interventions, which have

previously not been successful in

Northern Ireland due to

coordination issues.

Implementation Issues: The

British Business Bank is

delivering a range of existing

interventions. Consultation with

the Bank has not identified any

revised approach to addressing

the original coordination failure for

each of the existing interventions.

Verdict: There is the potential for

this intervention to address some

of the constraints facing the

DETI




Intervention

Name


Northern Ireland

which builds on the delivery

mechanisms of the Business Finance

Partnership and has 4 key objectives:

Increase the number of debt finance

markets available to SMEs

Mobilise new funding from private

sector sources to support lending to

SMEs;

Channel finance to SMEs in an

effective, appropriate and responsible

manner; and

Expand the total amount and/or types

of debt financing available to SMEs

Start up loans: This is a £152 million

government scheme to help people

start their own business. The British

Business Bank has oversight of the

funding provided to the Start Up loans

company to administer the

programme. The Start Up Loans

Company in turn works with a network

of distributors, including in Northern

Ireland: Enterprise Northern Ireland

and Rockstar Start Up.

The equity solutions include three existing

intervention:

Enterprise Capital Funds (ECFs):

Business Angel Co-Fund; and

UK Innovation and Investment Fund.

There is one new intervention (Aspire)

Aspire is aimed at encouraging female

participation and is orientated towards

female controlled businesses.

Maximum investment is £1million and

the initial funding round is up to £2

million.

Implementation Model: The British

application of Great Britain based

funds to Northern Ireland based

companies.

DETI




Intervention

Name


Northern Ireland

Business Bank does not offer support

directly to businesses, but works through

the private sector. This can be, for

example, through co-investment into funds

or through guarantees.

HMRC has the following venture capital schemes including the EIS, SIS, 3.2.7

and the Venture Capital Trust scheme

Intervention

Name


Northern Ireland

HMRC has the

following

venture capital

schemes

including the

EIS, SIS, and

the Venture

Capital Trust

scheme

The central aim of the venture capital

schemes is to encourage equity

investment in smaller unquoted trading

companies. Small businesses generally,

while often able to obtain modest loans or

overdraft facilities, find larger amounts of

capital difficult to raise - except for the

largest and most solid undertakings. The

exact range of this ‘equity gap’, as it is

known, is open to dispute, but the

existence of a funding gap of some kind is

commonly agreed.

The EIS aims to attract investment from

individuals (and, in the case of deferral

relief under the scheme, from certain

trustees). EIS encourages potential

investors through tax incentives:

Investors can invest up to £1million in

qualifying shares and received 30% of the

cost of the investment as a relief against

income tax;

Capital gains tax liability on disposal of an

existing asset can be deferred if reinvested

in EIS shares within a certain period.

Provided income tax is given and the

shares are held for a qualifying period any

profit on sale of the shares will be exempt

from capital gains tax.

Providing that income tax relief has been





of SMEs.

Key Market Failures: address a


of equity finance to SMEs.

However there is a coordination

issue in relation to the draw down

by cash rich investors in Northern

Ireland.

Implementation Issues: Since

the venture capital funds were

launched in 1993‐94, over 20,000

companies have benefited from

the scheme and over £9.7 billion

of funds have been raised.

Uptake in Northern Ireland is

lower than comparable regions

across the UK, and is

approximately half that of

Scotland21

. Northern Ireland got

1% of total support. The principal

reason cited is that there is a

limited number of high net worth

individuals in Northern Ireland to

invest in local companies. .

Verdict: The various tax

exemption schemes should be

21

InterTradeIreland –Private Equity Conference- feedback

DETI




Intervention

Name


Northern Ireland

given and has not been withdrawn, losses

arising on a disposal of the shares may be

set against income tax as an alternative to

being relieved against capital gains tax.

The VCT scheme encourages indirect

investment by individuals, through the

medium of a corporate vehicle similar to an

investment trust. VCTs invest their funds in

to eligible small companies. Eligible

companies can receive both debt and

equity investment from a VCT. VCTs

encourage potential investors through tax

incentives:

The maximum investment in VCT shares

by any individual in any year is £200k

which will qualify the relief against income

tax at a rate of 30% of the amount

invested. Shares must be held for at least

five years from the date of their issue by

the VCT; and

There is an exemption for capital gains tax

on disposal of shares in a VCT and

dividends on VCT shares are exempt from

income tax.

The SEIS was set up in April 2012 and is

designed to help small, early stage

companies to raise equity finance. The

SEIS offers a range of tax reliefs to

encourage individual investors to purchase

new shares in qualifying companies.

Shares must be held for at least three

years and income tax relief is available at

50% of the cost of the shares, up to a

maximum annual investment of £100,000.

Any gain on disposal of SEIS is exempt

from capital gains tax.

Scale of overall budget: Companies can

raise a maximum of £5million in any 2

month period from the government’s three

venture capital schemes: SEIS, EIS and

VCTs.

Target market: Smaller unquoted trading

considered as being

complementary to equity support

interventions currently being

delivered in Northern Ireland, i.e.

Business angels should be

encouraged to utilise these

investment tools in addition to

schemes such as the co-

investment fund.

DETI




Intervention

Name


Northern Ireland

companies.

Need more detail on each scheme/

eligibility criteria/ relevance to NI?

Implementation Model: Tax emption

schemes delivered by HMRC, with

individuals identifying relevant companies

to invest in.

DETI




4 APPENDIX 4: EQUITY FINANCE IN NI

The first table (shown on the next page) provides an overview of equity finance provision

in Northern Ireland. It includes details of funds that have recently closed, those that are

currently operational and those due to be launched imminently.

DETI




4.1 Description of Funds in NI including targets and achievements

Table 4:1: Equity Finance in NI – Current provision and achievements of each fund to date

Stage Fund Description Target22

- no of

investments

Performance Comment

Seed / Early

Stage

NISPO I

(2009 –

2019)23

Proof of

Concept24

Grant fund: £5m (£3m plus £2m extension) 25

Provides 2 grant types (mini26

up to £10k; standard27

up

to £40k)

Targeted at non-university start-ups to promote their

R&D needs.

Overall target to March

2014: 120 grants (over 4

years) plus additional 95

grants due to extension to

funding)

To March 2013:

153 grants

investing £3m

(within 3

years).28

The

number of mini

and standard

grants this

relates to was

not available at

the time of this

evaluation.

Exceeding

target.

22

Targets from:

Invest NI, NISPO II Signed Casework Papers (August 2013) – NISPO I and NISPO II

Deloitte, Interim Evaluation of the Co-If Fund (Draft Report) (2013) – Co-investment Fund

FGS McClure Watters Post Project Evaluation of Crescent Capital Fund I (2009) – Crescent Capital I

FGS McClure Watters Interim Evaluation of Crescent Capital Fund II (2009) – Crescent Capital II

Invest NI, Access to Finance presentation (December 2013) – Growth Loan Fund 23

Lifetime of Invest Growth Fund and University Innovation Funds is 10 years: Years 1 – 5 for new investment and 5 years for follow on, portfolio management and realisation. Proof of Concept initially had a duration of 5 years (under Grant Management Agreement) – with funding extension, this was extended to 6 years. 24

Invest NI - Interim evaluation of the Northern Ireland Spin Out Funds (April 2012); Invest NI – NISPO II signed board casework papers (August 2013) 25

Original target: 120 grants in 4 years with fund size of £3m. This was committed within 3 years. Invest NI committed an extra £2m to PoC in March 2013 with a target of 95 additional grants by March 2014. 26

Typically Mini grants will focus on both ‘proof of market’ (e.g. market research and testing, competitor analysis, developing IP strategies) and initial ‘proof of concept’ activities including feasibility studies and related concept development work. The outputs are typically market research reports, business cases and concept plans. 27

Standard grants are available for more complex or later stage proof of concept activities including prototyping; specialist testing and IP protection. The Grant Management Agreement (GMA) notes that standard grants can also be utilised for ‘building the management team….developing customer/partner interaction….and establishing…corporate and individual participation on a pre-incorporation basis.’ The output is typically a business plan or action plan. 28

At Q2 2012, the number of grants awarded was: 48 mini grants + 38 standard grants; the total awarded = £1,953,595

DETI





- no of

investments

Performance Comment

University

Innovation

Fund (QUBIF

& UIF)24

2 equity funds: each with a budget of £1m

Deal size: up to £200k

Provide equity support to university spin out companies.

Overall target to 2014:

Investments in 5

companies per

institution over the

period to 2014/15

Subsequently revised

target to Sept 201329

:

QUBIF: 5 investments

UIF: 5 investments

To March 2013:

QUBIF: 2

investments

UIF: 1

investment

At the time of this

evaluation the

amount invested in

the University

Innovation Fund

was not available.

On track

towards

target. At the

time of this

evaluation

information

on whether

this target

had been

met was not

available.

Invest Growth

Fund24

Equity fund: £7m (£5m plus £2m extension)30

Deal size: £50k-£250k

Provides seed/early stage investment in non-University

firms with growth potential, a scalable business model

and a strong IP base

Overall target to March

2014: 35 investments (25

original target + 10 due to

extension funding)30

To March 2013:

20

investments31

At the time of this

evaluation the

amount invested in

the Invest Growth

Fund was not

available.

On target.

29

Delay in launch by 6 months until September 2009. KPI changed from number of investments per annum to 5 each by September 2013. 30

Original target: 25 investments with a fund size of £5m. Invest NI committed an extra £2m to the IGF in March 2013 with a target of 10 additional new investments by March 2014. 31

Invest NI, NISPO II Signed Casework Papers (August 2013)

DETI





- no of

investments

Performance Comment

NISPO II

(2014 –

2024)32

Proof of

Concept33

Grant fund: £7.6m

Provides 2 grant types (mini up to £10k; standard up to

£40k)

Provides funding for non-university projects, for

individuals and for SMEs.

Overall target: 340 grants:

Mini: 200

Standard: 140

Not applicable. Not

applicable.

University

Innovation

Fund (QUBIF

& UIF) 33

2 equity funds: £1.5m in each fund

Deal size: £50K-£250K

Will invest in post-POC university spin outs with growth

potential. To encourage and fund spin outs from the

universities and it is anticipated that a pipeline will

emanate from university POC grants.

Overall target: investments

in 15 spin outs

Not applicable. Not

applicable.

Invest Growth

Fund33

Equity fund: £13m

Deal size range: £50k- £250k

Investment Policy: similar to Invest Growth Fund under

NISPO I - with evidence of at least one of the following

elements:

A product or service with one or more unique

aspects (with a strong intellectual property base);

Overall target: 65

investments in non-

university companies (April

2014-March 2019) with an

average deal size of

£200k34

Not applicable. Not

applicable.

32

Lifetime of Invest Growth Fund and University Innovation Funds is 10 years: Years 1 – 5 for new investment and subsequent years for follow on investments. PoC has a duration of 6 years – all grant awards will be made and funds committed by end of Year 5; Year 6 is when the final grant awards are expended and paid out. 33

Invest NI – NISPO II signed board casework papers (August 2013) ; Invest NI – NISPO II signed submission to DETI 21st October 2013

34 All NISPO II outputs / turnover & employment information sourced from Invest NI, NISPO II Signed Casework Papers (August 2013) unless otherwise stated.

DETI





- no of

investments

Performance Comment

Early sales or demonstrable cus

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