Economic impact of the Scottish Venture Fund: final report

The Scottish Venture Fund (SVF) aims to address the equity gap for businesses in the £2 million - £10 million range for high growth companies at development and expansion stage by investing £500,000 - £2 million on a £ for £ pari passu basis with private sector deal promoting partners. SVF forms one of a suite of loan and equity co-investment funds, together with the Scottish Seed Fund (SSF) and the Scottish Co-Investment Fund (SCF) which focus on smaller businesses at earlier stages in their development. The impact assessment aimed to: assess whether the original strategic rationale for SVF is still valid in terms of its policy fit, the perceived market failures for capital, and its market impact; estimate the economic impact of SVF 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 SVF; and make recommendations on the Funds’ future direction.

The methodology consisted of a desk study of management information and relevant background reports, interviews and survey research with a representative sample of 20 businesses (from a total of 26 funded and surviving, i.e. a 77% response rate) that received SVF investments followed by in-depth discussions with five of the businesses. Interviews were also held with some fifteen SVF funding partners along with other stakeholders in Scotland with knowledge of the funding market.

The impact assessment found that SVF has made significant progress in terms of its objectives and brought positive benefits to the Scottish economy in a number of ways. Overall, the net additional employment attributable to SVF was 317 (FTE) jobs at the time of the evaluation; which is likely to rise to 580 in the short term, and 791 in the medium term. The net additional cumulative GVA is likely to be £92m by 2016 and £253m by 2021 (at 2011 prices). Through the commercial co-investment concept with private investors, its aims and design, SVF also provides a good strategic fit with the Scottish Government Economic Strategy and the SE Business Plan. The findings show that on the basis of the market failure rationale of SVF related to the supply of capital and the potential demand for it, there is a continued justification for SVF funding for businesses at the development stage where the funding gap lay in the £1-2.5m range, and up to £10m. SVF was found to have provided, to a large extent, an integrated, cohesive, and consistent approach, in that the delivery has been endorsed by both businesses and funders. From the point of view of businesses, 80% considered that the management and delivery of SVF was ‘good’, especially the amount of funding, what it could be spent on (i.e. business operation and investment functions) and the support from the SE team of advisers and account managers. Very few weaknesses were identified. A very small minority of private sector partners suggested that SE staff should be given more discretion to go ahead with further funding rounds for businesses and suggested that the amount of information required from partners could be reduced and approval times shortened. Although the cost of impacts (eg for jobs and GVA) has been relatively high, primarily because it takes some time for the impacts of equity funding to feed through, the positive impacts of SVF show that it has demonstrated value for money, and will continue to do so.

Some suggestions were made for the future operation of SVF, including: improvements in delivery in terms of increasing the participation of some funding partners, strengthening the relationship between SE account management and the businesses and clarification of the roles of transaction, investment, portfolio and account managers for SVF; improving the management data further; and the regular monitoring of the economic impacts.