For the business community in Wales, this week’s budget did not have anything that had not been discussed in the press in the prior few weeks with one notable exception, namely the announcement that there would be a new £130m fund, to be delivered by the British Business Bank, to support ambitious Welsh firms.
For those of us who, for years, had been calling on the British Business Bank to make this type of funding available to the business community in Wales, it was a surprise as there had been indications over the years that officials within the British Business Bank were not convinced by the case for any substantial investment.
In fact, I remember an event in London shortly after the publication of my access to finance report for the Welsh Government in 2013 which had demonstrated, unequivocally, that Wales had been largely ignored in terms of the provision of venture capital by the British Business Bank.
Speaking to one of its senior officials, I tried to make the case again only to be dismissed with the usual comment that there was simply not enough dealflow in Wales to justify such an investment. Other efforts were made after this to develop new venture capital funds and yet the attitude remained the same and demonstrated a complete ignorance of the business landscape in Wales.
Indeed, the fact that fifty of our fastest growing firms created an additional £336 million in additional turnover between 2018 and 2020 and 2,000 new jobs in two years clearly indicates there are firms in Wales that could, with the right support and finance, create even more wealth and employment in the economy.
I have no idea why this volte face occurred last week and it also seemed to catch the British Business Bank by surprise but it should be warmly welcomed with open arms.
The fact that Wales is getting 8% of the total funding package being made available across the devolved nations and regions of UK suggests that, contrary to what the Bank previously thought, the message has finally got through that there is real potential within the businesses in Wales.
Of course, now the fund has been announced, there are further questions that will need answering. For example, is there an expectation that the fund will just be dropped into the laps of the Development Bank of Wales or, as many expect, will it be tendered out to fund managers who may have more experience of venture capital and investing in growing businesses?
Certainly, there have been concerns that the Development Bank has a monopoly on early stage investment into new ventures in Wales and that having another fund located here would at least ensure that there is greater competition in the market.
With some suggesting that the Development Bank’s approach to venture capital is one of low valuations, high management costs and, so far, little impact on the Welsh economy, a new entrant into this area will certainly change the funding landscape considerably.
Also with the Cardiff Capital Region announcing that it will be developing its own fund to support growth businesses in South East Wales, will this new money from the British Business Bank support this initiative or make it superfluous to requirements?
Another interesting development from the British Business Bank is the announcement that there will be a further £150 million over three years for the Regional Angels Programme, something which Wales has yet to take advantage of despite its aim to reduce regional imbalances in access to seed and early-stage equity finance for smaller businesses. Again, there seems to be a monopoly by the Development Bank in supporting informal investors through its Angels Invest Wales programme and hopefully this additional funding may encourage other business angel groups to be established in Wales.
There is also the guarantee of funding for 33,000 Start Up Loans over the next three years which, all things being equal, will provide support for over 1600 new firms in Wales, well beyond what the Development Bank has provided for entrepreneurs starting a business.
Therefore, the announcement by the Chancellor on this new funding for Welsh business warmly welcomed, especially if it creates a proper competitive market place
As I noted back in 2013 in the Access to Finance report, “there remains a lack of coherence when it comes to the management and development of equity funding in Wales and there needs to be a more joined-up approach in ensuring a greater focus on attracting venture capital for growth firms at all stages of development within Wales”.
Eight years later it seems that there is finally some movement in addressing this issue and whilst the devil will be in the detail, this new funding is a long overdue and an important addition to the entrepreneurial ecosystem in Wales.