British Business Investments

Interview with British Business Investments (BBI)

Donna Battersby (Regional Manager, North West - Deepbridge Capital) talks to Sue Barnard (Senior Manager, North West UK Network - British Business Bank) and Mark Barry (Investment Director - British Business Investment).

Can you provide an overview of the background, purpose and the goals of British Business Investment?

Sue Barnard: The British Business Bank is just over 8 years old and was created to ensure the SME Finance works better across the United Kingdom. BBI is government backed and we support start‑ up, scale‑up and stay‑ahead businesses. However, we do not directly invest into these businesses ourselves, we work with over 180 finance partners across the UK, one of which being Deepbridge Capital.

We work with Deepbridge Capital to identify gaps in the market where BBI can share the risk and co‑invest into growing businesses across the UK. Before the pandemic, BBI was funding around £8 billion a year in equity loans and guarantees across our partners. However, during the pandemic a lot more companies would have become more familiar with BBI, as we were providing support with bank loans, business interruption loans and future funds. During the last 12‑18 months, that on‑going support provided by BBI, scaled up British Business Bank and we were then funding in the region of £87 billion across 1.6 million business across the UK.

Where does BBI sit within the structure of fund raising?

Mark Barry: British Business Investment sits as one of two commercial investment arms within the BBB group and BBI was initially set up to co‑invest alongside the private sector into debt yielding products. Going to lower mid‑market debt through a range of strategies including debt funds, asset finance, FinTech, challenger banks.

Our team currently consists of 70 people, so we have a cumulative balance sheet of commitment of about £3 billion. More recently, we have started to move into equity, Deepbridge Capital being one of our partners in one of the equity programs. We are seeing quite a bit of growth in British Business Investments activity and reach too.

Deepbridge has been mandated to manage £15 million from British Business Investments’ Regional Angels Programme, can you give context as to why you’re working with Deepbridge Capital?

MB: We primarily picked our funding partners based on the due diligence we did on them and the regions they are also based in. We then co‑invest into every deal that they do so that they can do more deals, slightly bigger deals and help them in their own growth journey too.

Sue, I believe it was your introduction that led to Deepbridge managing £15 million from British Business Investments’ Regional Angels Programme, is this a key role of what you’re involved with?

SB: In all honesty, it was pure coincidence when chatting to Andrew Aldridge at Deepbridge about what British Business Bank do. I was originally meeting with Andrew to do a promotion of Northern Powerhouse Investments and people started to look at what exactly British Business Bank actually is. Then that led to having a conversation about Andrew, suggesting Deepbridge take a look at one of our other programs which has been around for a while. I did explain that it isn’t an overnight process by any means, and there were no promises either, nor was it my own decision! However, it’s always very satisfying for me to see when a Northern Finance Partner such as Deepbridge begins working with British Business Bank. It is part of the job, yes and like I said earlier, quite exciting.

Would you be able to give some insight about the rationale as to why Deepbridge was chosen to manage these funds alongside BBB?

MB: To date, we backed 10 managers with total commitments of £115 million. Of that, Deepbridge manages £15 million. We actually look for quite a lot in our investment criteria, it is not an overnight process by any means. British Business Bank are putting up £15 million to be invested over four years and the agreements themselves are actually 15 years long, so it really is patient capital. They are very serious, kind of institutional like commitments that we take very seriously and manage professionally.

The areas that we look at mainly around the management team are track record, the investment strategy, deployment and

Donna Battersby Regional Manager, North West ‑ Deepbridge Capital

Sue Barnard Senior Manager, North West UK Network ‑ British Business Bank

Mark Barry Investment Director ‑ British Business Investment

structure. What we at British Business Bank especially liked about Deepbridge was they had a great track record, over a number of years of doing exactly what they said they were going to do. With two main strategies of Technology Growth and Life Sciences. They built a great infrastructure, team and have great resources behind all of that.

We especially liked how Deepbridge deploys its funds, deploying a lot of capital efficiently and well is very positive.

Are you noticing any trends in the EIS market?

MB: Primarily talking in regards of early stage equity, particularly over the last two years or so, some of our partners see most of their EIS capital being raised at the end of the tax year. I personally think the whole market had a bit of a wobble and some of our partners who were expecting a large inflow of capital, raised on average, around half of what they expected. We’ve started to see a trend of these managers actually adapting to the market.

Are there any areas in particular that are more progressive or is it throughout the entire United Kingdom?

MB: Generally, it is throughout the entirety of the United Kingdom. However, to pick a few areas where we’re seeing our partners being more engaged with are areas such as the North West. Which three of our partners are based in such as Deepbridge, DSW and Matura Ventures. Other areas include Northern Ireland and across Scotland, in each of those regions we see a lot of advanced manufacturing engineering type of businesses which is great. Going forward, I believe we will continue to see the North West are a growth area, but also the South West. There’s a lot of biotech and healthcare start‑ups popping up from the universities and accelerators, which should be very interesting to watch.

Recently, we’ve seen the Chancellor announce an extension to the Regional Angels Program. Could you tell us a little more about the Chancellor’s most recent comments?

MB: Initially, when we launched it was £100 million pounds, which was then increased by about £30 million, and now this £150 million is a great validation for the program. So the total is now £280 million and we’ve got £165 million to make new commitments.

The other announcements that caught our eye was the other commercial investment subsidiary, British Patient Capital is managing a new program called Future Fund Breakthrough, completely separate to the Future Fund. That is a £375 million program to co‑invest into research and development companies raising later stage capital. The idea is that they will be up to 30% of these latest stage rounds. The rounds themselves have to be about £30 million at minimum, so big tickets coming in. A lot of these companies where they are mainly focusing in life sciences, heart hardware, manufacturing companies etc are capital intensive and you need to do lots of rounds and produce a lot of capital to get the products complete and ready to go to market.

Here in the UK, I think we lack that later stage capital for capital intensive companies, so this is where we’re going to increase the supply of that later stage capital raising. There have been a few deals announced recently, which means they are really getting moving, which is great to see.

Do you think there is a certain area that your partners are focusing on in their businesses, due to the pandemic?

SB: What we’re seeing is a lot of companies are now seriously thinking about the future and the companies’ growth. The pandemic was a difficult time for people all around the globe, but it has actually made a lot of businesses fully understand what their business is and what they need to do in order to survive, thrive and grow in future. We are noticing a lot of our partners diversifying, upskilling their own staff and also bringing in training programs. They are also doing a lot more research and development too. The pandemic, in a way, has focused the minds of a lot of our partners and enabled them to firmly put in place what they are going to do in order to grow.

What are your hopes for across the region in 2022?

SB: I know we’re definitely going to be extremely busy with all of our different funds. From my point of view, I want to see more appetite for growth and equity, from the more rural areas. I would also like to see more investments and understanding of what exactly is outside of the city centres. That is definitely something I will be looking for going forward.

Another hope of mine is to try and better understand how we can better support our partners and raise the awareness of what BBB and BBI have available.

If you could ask the government for one Christmas present, what would that be?

MB: Well, a few years ago we invested some debt capital into a challenger bank called ATM, by face dome. They have recently announced moving to a four day working week – which is perhaps something we could all consider. So if that was announced, that would in my opinion, be a great present to enhance productivity and team moral too.