Economic impact of the Scottish Enterprise Seed Fund: final report

The Scottish Seed Fund (SSF) aims to address the equity gap for businesses in the £20,000-£100,000 range for start-up and very early stage companies that seek to grow. SSF forms an initial source of funding for businesses as one of a suite of Scottish Enterprise (SE) loan and equity co-investment funds, together with the Scottish Co-Investment Fund (SCF) and the Scottish Venture Fund (SVF) which focus on larger businesses at later stages in their development. The impact assessment aimed to: assess whether the original strategic rationale for SSF is still valid in terms of its policy fit, the perceived market failures for capital, and its market impact; estimate the economic impact of SSF arising from the investee companies to date and into the future; assess views on the management and delivery; assess the progress towards the objectives set for SSF; and make recommendations on the Fund’s future direction. A key aim of the evaluation is to access the potential impacts over a five and ten year period up to 2021.

The methodology consisted of a desk study of management information and relevant background reports, interviews and survey research with a representative sample of 61 businesses (from a total of 72 – a response rate of 85%) that received SSF investments (followed by in-depth discussions with a sample of the businesses). Interviews were also held with some eleven investors in SSF along with other stakeholders in Scotland with knowledge of the funding.

The impact assessment found that SSF has made significant progress towards its objectives and brought positive benefits to the Scottish economy in a number of ways. It has generated some 151 net additional full-time jobs, which is likely to rise to 546 by 2021. The cumulative GVA generated is likely to be £68m by 2016 and £191m by 2021. In terms of the strategic rationale for SSF, through the commercial co-investment concept with private investors, its aims and design, SSF was found to provide a good strategic fit with the Government’s Economic Strategy (GES) and the SE Business Plan. It strengthens the business support environment by providing a flow of capital for growth businesses to help address the funding gap working with the private investors and address market failure issues. Findings indicate that on grounds of market failure and the market features related to the supply of capital and the potential demand for it, there is a continued justification for SSF funding for businesses at the start-up and very early development stages where the funding gap lay in the £100k range. The management and delivery of SSF has worked well, with a high level of satisfaction indicated by the interviews with investors and businesses. The cost of impacts was found to have been fairly typical of other seed funding programmes elsewhere and the positive impacts of SSF suggest that it has demonstrated value for money, and will continue to do so.

Some suggestions were made for the future operation of SSF, including: improvements in delivery in terms of strengthening the relationship between SE account management and the Board representatives of private investors and the businesses; improving the management data further; and the regular monitoring of the economic impacts.