T he Coalition’s programme to cut Government spending is forcing significant job reductions in the public sector. In aiming to stimulate alternative economies, Prime Minister David Cameron and his Cabinet have made it clear they are targeting the private sector to promote growth and sustainable employment.

Following on from the Enterprise Capital Fund, Whitehall has created the Regional Growth Fund (RGF), a £1.4bn fund operating across England from 2011 to 2014.

A downstream product of the RGF is the Business Angel co-investment fund, where Government funds will be invested alongside those of business angels to fuel private investment in small and medium enterprises (SMEs).

Public and private money will be invested in key areas, address funding gaps with the risks and rewards shared.

With funds such as the RGF, the model is not one of grants — rather it is evergreen, one where investments produce a return to be re-invested on future projects.

The Angel CoFund was created by a successful bid to the RGF by the Oxford Investment Opportunity Network (OION) and four other private sector partners including Braveheart and Hotspur.

OION’s investment network manager, Eileen Modral, said: “Our bid was £100m and we were awarded £50m.

“The fund covers the whole of England, not just Oxfordshire. Our target is to fund SMEs in the 75 per cent least funded areas but certain areas and postcodes are excluded. There’s a list of 50 councils, the top revenue earners, that we can’t view.”

The £50m will be allocated over three years and expended over 10.

The Enterprise Capital Fun (ECF) was created to address a market weakness in the provision of equity funds to SMEs by using Government funding alongside private investment so the CoFund almost exactly mirrors the ECF in concept.

However, while the ECF offered £2 of Government cash for every £1 of private, the CoFund is £1 Government to £2 private.

In line with the policy of the private sector playing the leading role, the Coalition is relying on CoFund angels to identify suitable investments and carry out due diligence on the commercial, financial, legal and technical aspects of target companies.

One of the syndicate will act as lead investor. The soundness of the intellectual property held by a company will frequently be a key issue.

Government investments are now managed by Capital for Enterprise Limited (CfEL), a national body which is part of the Department for Business, Innovation and Skills.

CfEL is the largest single investor in UK early-stage venture capital and manages investments of more than £550m in about 40 venture funds.

The process for syndicates to gain investments from the CoFund is fairly simple.

The lead investor submits a proforma for expression of interest to CfEL. Once CfEL approval is obtained, the syndicate follows up with the necessary documents to one of a number of investment committees now being recruited.

Committee members will be drawn from the ranks of business angels, venture capitalists and fund managers with broad experience in the field.

By using virtual meetings, delays are kept to a minimum, and decisions will be expected in between 10-15 weeks.

Ms Modral said: “The whole scheme and process are still being finalised and there is one aspect that is causing some head scratching.

“Once a syndicate has submitted one bid, it is obliged to offer all its qualifying deal flow to the CoFund. These syndicates form and re-form all the time according to the investments in the pipeline, so they cannot see this requirement working in practice.”

The initial investment sizes will be in the range £100,000 to £1m.

OION was established as one of Europe’s first business angel networks in 1994 and remains one of the few private sector angel networks in the country.

Today, OION and two sister investment networks in the group, Thames Valley Investment Network and Oxford Early Investments, assist growing companies across the UK to secure crucial business development funding from £20,000 to £2m.

In July 2010, OION was named Angel Network of the Year at the British Business Angels Association annual awards.

Chris Baker, head of investment services at the OION Network, said: “We are delighted the Angel CoFund is now open for business.

“The scheme is partly modelled on a highly successful co-investment programme that OION operated with Bank of Scotland during 2008.

“We know from experience that the availability of Government capital to match funds committed by angel investors will significantly boost angel investment, enabling high quality companies to grow and create employment.

“We look forward to working with our partners and Capital for Enterprise to facilitate deals and ensure the Angel CoFund is an outstanding success.”

www.oion.co.uk