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02/01/2012

Investing for a bright future

JEREMIE funding brought FW Capital to the North East and since then the fund management company has been impressed by the investment opportunities on offer in the region. Andrew Mernin finds out more about what FW Capital looks for in an investment.

Established investor

FW Capital first came to the North East some 18 months ago, bringing with it the keys to a new £20 million funding pot aimed at established businesses. A subsidiary of the Finance Wales Group, it manages the North East Growth Plus Fund, which is part of the £125 million Finance for Business North East Fund, and has already invested in six businesses in the region. However, with a number of potential deals in negotiation at the time of writing, fund manager Andrew Coles expects this figure to increase by the end of the summer.

Coles is enthusiastic about the North East’s potential: “We’re an established regional SME investor and the North East is a huge opportunity for us. There’s a well-established advisory network open to VC funding and also some owner managers who are keen to think about equity investment in return for a bigger end game. Going forward, I’m keen to work with these owner-managed businesses and their advisers.”

Fresh perspective

As one of the North East’s newest fund managers, Coles is well placed to offer a fresh perspective on SME investment in the region. When he first arrived, Coles was pleased to find a well-established and open corporate finance community ready to do business: “There’s an abundance of established businesses supported by a strong corporate finance community. The market’s very well educated and primed for venture capital investment. Unlike many of the other investment funds on offer in the region, we don’t target start-ups. We’re looking for investment opportunities in established businesses.”

Coles looks for businesses with a growth story firmly embedded in their fabric, and needs to see a strong management team and good visibility of how revenues and associated cash flows will be generated.

"We don’t want to invest in a business for it to stand still - we want to work with the business, add value and then see it flourish," he emphasises. 

Sharing risk

FW Capital has a strong track record in completing deals where its funding complements, rather than replaces, existing funding sources and also shares risk, as Coles explains: "We’re keen to co-invest with other funders such as banks and we often co-invest to share risk. We always undertake stringent due diligence when we invest and this gives other funders the confidence to co-invest with us. So, for a £2 million funding requirement, we could invest £1 million alongside £1 million from a bank, for instance.”

Managing a fund that can co-invest means Coles has not only gained a good grasp of the funding needs of established North East businesses, but also the capital that’s locally available.

“The beauty of the fund we manage is its flexibility. We almost start with a blank sheet of paper in terms of the type and style of the investment and we then come up with a creative deal structure that really works for the business.”

Brighter future

Despite the headlines, Coles believes banks still have an appetite to invest in the region’s SMEs, but accessing such finance takes more time and effort now than it has done in recent years. He continues: “The bar has been raised, but there is still money available for high quality deals. It isn’t all doom and gloom.”

Looking to the future, Coles is upbeat about the level of deal activity in the North East and looks forward to a brighter future: “The local market seems to be looking forward very positively. The lawyers and accountants seem to be busy, which is always a good barometer for deal activity levels. I’d urge established businesses to think hard about investing in their future and consider the funding opportunities on offer. This could really give them the edge in a recovering economy.”

This article first appeared in BQ Magazine, summer 2011.