Octopus Investments, an alternative investment specialist, has been appointed by Capital for Enterprise Fund Managers to manage the Octopus Capital for Enterprise Fund.
Octopus Investments, an alternative investment specialist, has been appointed by Capital for Enterprise Fund Managers to manage the Octopus Capital for Enterprise Fund.
Octopus started working on investing this fund soon after the Capital for Enterprise fund was launched in January as part of the Real Help for Business programme.
The CFE fund is one of the measures introduced by the government to bridge the current funding gap that many UK small and medium enterprises are experiencing as a result of the credit crisis.
In total, GBP75m has been committed to the fund, of which GBP60m has been allocated to two fund managers, Octopus and Aberdeen Asset Managers. Each will oversee the management of a GBP30m fund.
Octopus will focus on applications made by businesses based in the Southern part of the UK, including London, the South East, the South West, East Anglia, the West Midlands and Wales. Aberdeen will focus on applicants from the East Midlands, the North West, Yorkshire and Humber, the North East, Northern Ireland and Scotland.
Both funds have been designed to offer equity or quasi-equity financing and will focus on investment in fundamentally sound businesses with existing cash flows and genuine growth potential but which are currently unable to access the funding they require. Since mid-January, both Octopus and Aberdeen have been identifying and reviewing applicants to the CFE fund and will be making investments over the next 12 months.
Investments made by the Octopus Capital for Enterprise Fund will consist of a combination of ordinary shares and loan notes, which have an anticipated term of up to five years. The exact terms offered will vary depending on the nature of the business and its individual situation.
With a minimum investment of GBP200,000 and a maximum initial limit of GBP2m per company, it is likely that successful applicants to the OCFE will have the following characteristics: an established business with sustainable operating profits and positive cash generation but unable to access further debt funding; an incentivised management team with a proven track record; operating in a growth market with a strong defensible position in relation to competitors; and generating strong margins with a scalable business model.
All applicants to the Capital for Enterprise Funds must have their principal place of business within the UK or be able to illustrate why investment will be of demonstrable benefit to the UK. Additionally they must meet the EU definition of an SME, which means fewer than 250 employees, an annual turnover of no more than EUR50m and/or an annual balance sheet that is below EUR43m in total.
Although the Octopus and Aberdeen-managed funds will have no sectoral bias, both will be prohibited from investing in certain sectors, including those which contravene accepted standards of moral and ethical behaviour.
For successful applicants to the Octopus Capital for Enterprise Fund, the whole investment process, including the detailed due diligence phase and release of funds will, in most cases, take around six to eight weeks from the agreement of terms.
Chris Hulatt, director and co-founder of Octopus Investments (pictured), says: ‘We are delighted that Capital for Enterprise Fund Managers has selected Octopus to run one of these extremely important funds. We are fully committed to this part of the market and believe that with our substantial expertise in small company investment, combined with the level of support we can offer throughout the investment process and our extensive network of contacts, we can really make a difference and provide SMEs with the funding solutions they so urgently require in the current market environment.’
Rory Earley, chief executive, Capital for Enterprise Fund Managers, says: ‘Following an exhaustive due diligence process we are extremely pleased to be working with two of the leading VCT managers in the UK. We have been impressed by the rigour of both teams throughout the selection process and have every confidence these managers will identify and invest in SMEs with strong growth potential.’
