Establishing a new UK finance escalator for innovative SMEs: the roles of the Enterprise Capital Funds and Angel Co-Investment Fund

Abstract

This paper examines UK public policy addressing the seed and early stage equity finance gap since the global financial crisis (GFC). Drawing on lessons learned from recent studies of UK and international government equity schemes, two contemporary models of government-backed equity finance are examined. The focus is on the Enterprise Capital Funds (ECFs) and the Angel Co-Investment Fund (ACF), the UK government's main schemes operating in the sub-£2m equity finance gap to address the capital requirements for developing the UK's young, potential high growth businesses. The paper highlights the shortcomings of traditional interim fund performance analysis and presents current demand and supply side evidence that establishes that these schemes are making attributable impacts on their portfolio businesses and the wider UK economy. It also demonstrates that they are playing important roles in the establishment of a new post-GFC UK finance escalator. However, whilst these schemes were found to be currently complementary and effective, their future roles within the UK's evolving post-GFC seed and early stage equity markets are also considered.

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