ADVANTAGE WEST MIDLANDS

ANNUAL REPORT ON THE REGIONAL FINANCE FORUMAND ACCESS TO FINANCE INITIATIVES

Non-confidential

Objective

i To update the Board on the objectives, achievements and plans of the Regional Finance Forum, and the key challenges for 2007/08 and beyond.

Recommendations

i This report is provided for information. Board members are asked to note its contents.

1. Background

1.1 Improving Access to Finance for businesses has been a significant part of successive iterations of the West Midlands Economic Strategy. To inform and drive this, the Regional Finance Forum (RFF) was established in 2001/2 with a vision to ensure that “innovation, entrepreneurship and business growth are not adversely affected due to a viable business being unable to access appropriate finance”.

1.2 The RFF is chaired by Norman Price and draws its membership (Annex 1) from a wide variety of knowledgeable representatives of the business financing chain in both the private and public sectors.

1.3 Since 2002, the RFF has overseen and advised on the implementation of the Regional Access to Finance Framework which is regularly reviewed and updated based on supporting evidence of the changing landscape of SME finance. The RFF provides advice on the responses which the Agency could make to such changes.

1.4 As a result of the implementation of actions identified as priorities within the Regional Access to Finance Framework the region now has a comprehensive range of Access to Finance initiatives (Annex 2). Most are externally managed, although the Agency’s Access to Finance team operates the Selective Finance for Investment in England grant scheme and the Grant for Research and Development (on behalf of DBERR and DIUS respectively).

1.5 A summary of the progress against the Regional Access to Finance Framework is at Annex 3 with details of the performance of these initiatives at Annex 4.

2. Activity in 2007/08

2.1 The principle areas of additional activity since the last annual report to the Board (26 November 2006) are as follows:

• Injecting an additional £3 million into the Advantage Early Growth Fund;• Committing an additional £6.3 million (alongside £2.5 million of private

sector funding) into the Mercia Technology Seed Fund;

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• Developing and implementing a revised package of support for Business Angel activities designed to bring more active Business Angel networks into the region and increase the number of active Business Angel investors;

• Securing European State Aid approval for Investbx and providing £3m to establish it as the first virtual trading platform of its kind in Britain to help small to medium businesses raise capital for growth, in exchange for shares;

• Working with Business Link West Midlands to extend the Investment Readiness programme across the whole region;

• Working with Business Link West Midlands and Impetus (one of the region’s CDFIs) to set up a Flood Recovery Loan product;

• Commissioning an evaluation of the region’s Investment Readiness initiatives to inform the development of this service within Business Link West Midlands;

• Commissioning an evaluation of the region’s CDFIs to establish how successfully they have addressed previously identified gaps in the provision of loan finance of up to £50,000; their sustainability and whether further support to CDFIs is required and, if so, what form that support should take;

• Commissioning research on the availability of debt based finance in the region to identify if there is a gap over and above that being addressed by CDFIs which should be met through a successor to the Advantage Transition Bridge Fund;

• Undergoing a Scrutiny Review of Access to Finance by the West Midlands Regional Assembly;

• Contributing to the Agency’s successful Independent Performance Assessment;

• Responding to BERR’s Consultation on Business Support Simplification;• Expressing concerns to Ministers with regard to the operation of the Small

Firms Loan Guarantee Scheme and proposed changes to Capital Gains Tax;

• Reviewing the Terms of Reference and Membership of the Regional Finance Forum.

2.2 These are discussed in more detail below.

2.3 The Advantage Early Growth Fund is a venture capital fund providing risk capital to Small and Medium Sized Enterprises (SMEs). It can invest up to £100,000 in a business at the first round funding stage, and up to £200,000 in an individual business in total. It can only invest alongside a private sector co-investor who invests at least as much as the Fund. In this way the Fund encourages business angels to invest in early stage businesses, thereby increasing the capital available to the business and bringing in expertise with the angel investor. It was originally a £4 million fund (with its cash coming from the Small Business Service), but it was investing significantly more quickly than anticipated. The Fund therefore approached the Agency for an additional £3 million of funding to enable it to invest throughout its planned investment period. Up to 30 September 2007 the Fund has invested £4.8 million into 40 businesses.

2.4 The Mercia Technology Seed Fund was the original West Midlands University Challenge Fund. It can invest up to £250,000 into early stage technology businesses, frequently university spin outs. It was originally a £4 million fund, intended to be evergreen. However, the early stage nature of its investments has meant that realisations have been much slower than anticipated, with the result that the Fund ran out of funds to invest. Accordingly West Midlands

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Enterprise, the Fund Manager, approached the Agency to inject a further £3.8 million, and at the same time to invest £2.5 million into a new £5 million fund operating alongside the original University Challenge Fund. The remaining £2.5 million is being invested by private sector investors, including universities and others. The new fund will be able to invest up to £500,000, thereby giving the combined funds investment capacity of £750,000 into any one business. This enables the combined Fund to “follow its money” which protects investment values. Up to 30 September 2007 the Fund has invested a total of £4.2 million into 26 businesses.

2.5 Until 31 March 2007 our support for Business Angel activity had been channelled through Advantage Business Angels (ABA), which started as a consortium of the Business Angel networks active in the region in 2002/03. However, it effectively became the sole significant Angel Network operating in the region. Drawing on the recommendations of an evaluation of Advantage Business Angels and the levels of angel activity in the region, both actual and potential, we reshaped our business angel support from April 2007. As a result the cost to the Agency has been substantially reduced with no significant reductions in outputs and investment levels. In addition, a range of supporting activity aimed at increasing awareness of the benefits of business angel investment to both businesses and potential investors and attracting new investors is being delivered by ABA and two other business angel networks, Beer and Partners and Minerva Business Angels.

2.6 After securing State Aid approval from the European Commission, Investbx was established in July 2007 as the first virtual trading platform of its kind in Britain. Its purpose is to help small to medium businesses raise capital for growth, in exchange for shares. Investbx raises the equity on behalf of the companies, unlike traditional markets that rely on third parties. Admission to the trading platform is via a simplified process, created and developed by some of the leading professionals in the community. Investors are provided with independent research on which to base their investment decisions and, via an auction-driven platform, will have the capability to trade their shares. Investbx’s focus is on developing successful partnerships with companies, investors and advisers. Since opening the doors for business in July 2007, Investbx has been working to a very tight timetable in order to bring the first company to market in December 2007. Rigorous activity has been centred on preparing the first company and developing a community of potential investors. Working with the professional community it has now completed its first admission process and this has been refined as it has moved through the practical implementation. Momentum has been gathering with a number of companies being prepared to follow the launch company and the Investbx team are delighted with the quality of opportunities they are seeing. Similarly, through focused marketing and relationship building, it is securing more and more support from the investor community which is extremely encouraging. The critical path to success commences on Monday 19 November and will run through to the end of January 08, after which point it will be in a position to move forward with more listings.

2.7 Prior to 1 April 2007 the Agency contracted with Business Link and Connect/InvoRed for the provision of Investment Readiness services. From April 2007 Business Link has responsibility for managing the provision of information and advice and diagnosing business needs. If more intensive support is required this is brokered to third parties. Recently, it has contracted with Connect/InvoRed to provide a range of specialist Investment Readiness

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services for high growth businesses and with a number of other providers for awareness raising and ‘education’ activity aimed at increasing engagement with businesses that it has not traditionally engaged with and which are known to face barriers to accessing finance (some minority ethnic businesses, women, rural and social enterprises). This reflects recommendations from the evaluation which we commissioned into the performance of the earlier Investment Readiness activities. This activity has started slowly under the new Business Link due to delays in contracting, but activity levels are expected to increase through the second half of the year. The programme is also now operating on a region-wide basis, having previously been largely restricted to the Objective 2 areas of the West Midlands.

2.8 Community Development Finance Institutions (CDFIs) continue to receive support under the Advantage Small Loans Programme (ASLP) to enable them to expand their lending to businesses requiring up to £50,000. Obtaining grant for this purpose has the effect of building the capital base of the CDFI and hence contributing to sustainability. In addition the Agency has made available funding of £1.8 million to provide loans to flood affected businesses. This is part of a package of support for businesses affected by the summer floods that is being delivered via Business Link. The loans are being delivered via one CDFI (Impetus). Up to 30 September 2007, 27 Expressions of Interest in obtaining loans had been received, of which 6 applications had been submitted with an overall value of £80k.

2.9 During the year we commissioned an evaluation of the performance of the region’s CDFIs in addressing previously identified gaps in the provision of loan finance up to £50,000. The evaluation has shown that, whilst the CDFIs have partly addressed these gaps, businesses in some parts of the region do not have access to this type of finance at all, or only for a certain range of lending. It confirmed that to address this and ongoing demand significant levels of public sector support will need to be provided for the foreseeable future. The review also identified resource and expertise issues which need to be addressed if effectiveness and efficiency are to be maximised. We shall be working with individual CDFIs and the Fair Finance Consortium (which draws them together) to see how these issues can be addressed at best value to public funds.

2.10 The Advantage Transition Bridge Fund (ATBF) was set up following the demise of MG Rover to lend to businesses severely affected by the collapse of MG Rover, which had viable business plans to stabilise the business and move forward, but which were unable to finance those plans from conventional sources. ATBF lent a total of £5.4 million to 20 businesses, safeguarding 1,413 jobs. Whilst some have since failed, a high proportion are performing well and indications are that the Fund will return at least the capital the Agency injected. The Regional Finance Forum has expressed its belief that there is a need for a more general loan fund to address businesses in transformation/transition with viable business plans but which are unable to obtain sufficient funding from conventional sources. We commissioned a report into this from West Midlands Enterprise, who have confirmed that a gap in provision does exist. Accordingly we have prepared an outline proposal to set up a Fund, initially capitalised via Agency and European (ERDF) funding at £8 million, but which could grow beyond that should the demand show that this is required. It is intended that further expansion of the Fund should be based on it securing private sector finance. We are aiming to send out a tender for the management of this Fund before Christmas, with a view to having it up and running by 1 April 2008.

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2.11 The Agency’s Access to Finance activities were subject to Scrutiny by the West Midlands Regional Assembly during the year. The Scrutiny recognised the considerable amount of activity delivered by the Agency, and made a number of recommendations. The recommendations, our response and action taken to date in respect of them are set out in Annex 5.

2.12 The Agency’s Independent Performance Assessment found that “The Agency is performing strongly on the Access to Finance agenda” reporting that “Good progress has been made to establish various growth funds and an Investment Readiness Programme. AWM have been acknowledged by OECD as playing a “pivotal coordinating and shaping role for Access to Finance in the West Midlands”. It also recognised the strength of the partnerships developed with the private sector “in establishing an extensive range of Investment and Venture Capital funds to provide a continuum of finance for SMEs and the support for business through the Business Links network”. It reported that “The Access to Finance initiative is highly regarded”. It commented that Investbx “will be a first for the RDAs and is seen by the EU as a very innovative project, which may be a valuable precedent for other Member States”.

2.13 In addition to its role in advising the Agency on issues regarding finance for SMEs and how to address them, the RFF also has a role in lobbying Government in respect to central government initiatives which may have an impact on the Access to Finance landscape. Recently letters have been sent by the Forum to Stephen Timms, Minister for Competitiveness at DBERR, expressing concern at the operation of the Small Firms Loan Guarantee Scheme and at the proposed changes to Capital Gains Tax announced in the Pre-Budget Report.

2.14 Finally, taking account of recommendations within the Regional Assembly’s report of its scrutiny of the Agency’s Access to Finance activity, changes to the Forum’s membership have been agreed and will formally take effect from 1 January 2008. Some existing members have decided to stand down and a number of new members have, or are in the process of being recruited. These include more business users via representatives from the West Midlands Business Council and those with links to other groups such as the Minority Ethnic Business Forum, Regional Women’s Enterprise Unit and Social Enterprise Network. Annex 1 shows the proposed make up of the Forum. The opportunity has also been taken to update the Forum’s Terms of Reference and introduce of a Code of Practice.

3. Challenges and Priorities for future years

3.1 The challenges and priorities for the future are:

• Set up the successor to the Advantage Transition Bridge Fund (the Advantage Business Transformation Fund);

• Set up an ongoing Proof of Concept funding product;• Plan and implement successor funds to the Advantage Early Growth Fund

and the Advantage Growth Fund as they move out of investment mode;• Implement a rationalisation of the CDFI network in the region to ensure

region-wide coverage at best value for public funds;• Continue to work with Business Link to ensure that an effective and efficient

Investment Readiness Programme is provided which enables businesses to access the funding they need to grow and develop;

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• Work with the Business Link Enterprise Brokerage to ensure appropriate funding to support start ups;

• Work with the Social Enterprise Network to ensure appropriate funding to support social enterprises;

• Continue to work at publicising and promoting the range of Access to Finance initiatives to ensure that they achieve the maximum benefit for the region;

• Deliver these priorities in compliance with the Business Support Simplification Programme, which may be more prescriptive than we would like.

4. Conclusions

4.1 This has been an active and broadly successful year for the Regional Finance Forum with significant achievements in terms of implementing the revised Regional Finance Framework and ensuring that established initiatives continue to deliver.

Recommendations

i This report is provided for information. Board members are asked to note its contents.

Paper prepared by: Patrick Palmer,Head of Access to Finance and Interim Director of Enterprise

Paper presented by: Dr Richard Hutchins, Corporate Director, Economic Development

Date: 27 November 2007

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Annex 1: MEMBERSHIP OF THE REGIONAL FINANCE FORUM FROM JANUARY 20081. Chair Norman Price 2. Innovation Finance Ederyn Williams3. Business Angel Bob Barnsley4. Accountants Nigel Hastilow 5. Accountant - Practice Stuart Gray6. Corporate Finance Jonathan Hall7. Corporate Recovery John Kelly8. Finance Broker Chris Brown 9. Womens Regional Enterprise Unit Sally Arkley10. WM Social Enterprise Network Steve Walker11. Bank of England John Bartlett12. WM Business Link Lorraine Holmes/Tony Lucas13. Enterprise Board David Rowe14. Fair Finance Consortium Paul Kalinauckas15. Minority Ethnic Business Forum Tony Sealey16. Co-opted Bob Cox17. West Midlands Business Council Mike Cherry - FSB18. West Midlands Business Council Roger Trotman - EEF19. Bank/Asset finance20. Bank 21. VC22. Markets23. Corporate finance lawyerTo be reviewed – may change to representative of the Local Authorities24. Government Office Hanne Hoeck AWM Members1. Corporate Director-Economic Development Richard Hutchins2. Head of Access to Finance Patrick Palmer3. Business Finance Executive Mike Watts4. Access to Finance Team Co-ordinator Shaana Hutchins5. Business Support Performance Manager Tony Sims

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Annex 2: Helping to improve access to finance for businesses in the West Midlands

Ensuring businesses have access to appropriate finance is key to an enterprising region. Entrepreneurs need finance to start new businesses and existing businesses need it to realise opportunities for growth. Accordingly, Advantage West Midlands has drawn together a Regional Finance Forum and Access to Finance Framework with the aim of ensuring that innovation, entrepreneurship and business growth are not adversely affected due to a viable business being unable to access appropriate finance. Advantage West Midlands' role in enabling access to finance involves identifying market failure and gaps in the supply of finance and working with the private sector to explore the most appropriate ways for these to be filled. This has led to the provision of a range of  grants, loans and venture capital that provide businesses with funding, as follows:

Regional SME focused financial initiatives with AWM support

Equity based finance

Advantage Business Angels

Business angel networks to bring entrepreneurs and companies, looking to raise £25k+ and individual investors together.

Neil Mackay Tel: 0121 456 7940info@abangels.com

Beer and PartnersSteve McEwenTel: 01902892555mcewen@beerandpartners.com

Minerva Business Angel NetworkHarry StottTel: 024 7632 3123Harry.Stott@uwsp.co.uk

Advantage Creative FundEquity fund focussed on creative industries that provides up to £250k investment.

David Edmonds Tel: 01543 473 035 info@acfwm.co.uk

Mercia Technology Seed Fund Invests amounts of up to £750k as seed corn capital for businesses with a strong technology base and intellectual property

Dr Mark PaytonWM EnterpriseTel: 0121 236 8855

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position. markp@wm-enterprise.co.uk

Advantage Early Growth FundEarly stage equity fund which will provide £20k to £100k that must be matched by a private sector investment.

Kevin Caley Tel: 07710 131 458 admin@aegf.co.uk  

Advantage Growth FundEquity fund focused on high growth businesses that provides up to £250k investment.

Tony StottTel: 0121 710 1990 enquiries@midven.com

Advantage Enterprise & Innovation Fund

Equity fund which will provide £250k to £1m that must be matched by private sector investment.

Julie NewmanTel: 0870 116 3000aeif@catapult-vm.co.uk

InvestbxFirst virtual trading platform of its kind in Britain to help businesses raise equity finance up to £2 million.

Pauline DaveyTel: 0121 233 4903paulinedavey@investbx.com

Loan Finance

Community Development Finance Institutions (CDFIs)

CDFIs provide loans of up to £50k to businesses which have a viable business plans but are unable to obtain all or part of the funding elsewhere.

For information on CDFIs - George Keenan Fair Finance Consortium Tel: 0121 230 1068info@fair-finance.net

Arrow Fund

Provides loans of up to £10k to businesses with a viable business proposition, but which have been unable to raise funds through normal sources.

Arrow – Small Business FinanceAlison BradleyTel: 0121 607 0129enq@arrowfund.co.uk

Grants

Technology Transfer Fund Grants of up to £25k for new and potential start-ups and existing Small Medium Enterprises (SME's), working in the Advanced

Birmingham Research and Development LimitedMelanie Kaiser

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Materials and Medical Technologies fields for activities such as Business Planning, Protection of Intellectual Property, Market Research, Final Prototyping

Tel: 0121 414 8618brdl-ctb@bham.ac.uk

Grants for Research and Development

Grants ranging from £2,500 to £500,000 to support technologically innovative research and development projects in small and medium sized enterprises.

Richard HansonTel: 0121 503 3230Richardhanson@advantagewm.co.ukwww.advantagewm.co.uk/grd

Selective Finance for Investment in England

Grants of £10,000 upwards to support capital expenditure project which improve productivity, skills and employment.

Phil BaronTel: 0121 503 3271Philbaron@advantagewm.co.ukwww.advantagewm.co.uk/working-with-us/selective-finance-for-investment-in-england.aspx

Further details of these and other sources of funding are now accessible via www.westmidlandsfinance.com. This website contains the most comprehensive regional database of financing for West Midlands SMEs and has a unique search facility enabling businesses to find the sources of finance most suitable to them.

Is your business ready for investment?

If you consider you need more personal advice and support, for example:• you need a better understanding of the various types of finance available• you want advice about what funders are looking for when assessing applications for funding; and how to present your proposition• you have a funding proposal but need some specialist help to ensure it is investment ready you should make contact with Business Link West Midlands –www.businesslinkwm.co.uk

Investment Readiness Investment readiness support for all types of SMEs (including access to services provided by Connect Midlands)

Anthony AndrewsTel: 0845 113 1234AnthonyAndrews@businesslinkwm.co.uk

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Annex 3: Progress against the Regional Access to Finance Framework

Priority Actions Actions to date• Improve communication of Access to Finance

initiatives• Many presentations made to relevant parties• Business Finance Conference held October 2006; second one will have

taken place on 19 November 2007;• Birmingham Post article on Regional Finance Forum and Access to

Finance initiatives. Follow up articles planned.• Build on R2i and InvoRed Investment Readiness

programmes to develop “Best Practice” model• Evaluation received and conclusions shared with Business Link West

Midlands which now manages the provision of these services. • Extend R2i Investment Readiness programme to

whole region• Done in conjunction with Business Link West Midlands.

• Rationalise and improve “Proof of Concept” funding

• Spinner and Technology Transfer Fund extended. Plan to develop region-wide Proof of Concept provision from 1 April 2008

• Improve cooperation between the existing venture capital funds

• Regular meetings of fund managers in place

• Provide additional venture capital funding for early stage science based businesses

• Total commitment of £6.3 million to the Mercia Technology Seed Fund, leveraging in an additional £2.5 million from the private sector.

• Develop approach to venture capital funds as existing funds mature

• Future action

• Develop model for sustaining long term business angel activity

• Implemented new Business Angel support programme with effect from 1 April 2007.

• Obtain State Aid clearance for Investbx and launch shortly afterwards

• Now achieved. Investbx had a “soft launch” during Summer 2007 and expects to raise finance for its first companies at the turn of the year.

• Review requirements for start up support and implement as appropriate

• Future action in conjunction with the Enterprise Brokerage

• Extend Advantage Transition Bridge Fund to enable it to lend into non-MG Rover related situations

• Commissioned appropriate research. Outline approval for a broader based Fund has been given. Work progressing on establishing this by 1 April 2008.

• Review sustainability of CDFI activity and take appropriate action

• Commissioned appropriate research. Discussions to take forward recommendations will take place during Winter 2007.

• Review finance needs of social enterprises and take appropriate action

• Discussions to take forward recommendations will take place with the Social Enterprise Network during Winter 2007.

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Annex 4: Performance of Funds supported by AWM and Grant schemes administered by AWM

Summary of investments made by VC funds as at 30th September 2007Fund No

of inv

Investments made £

Av inv £ Bus's r'cvg inv

Av inv £

Size of Fund £

Yet to be invested £

Other funding levered in £ (incomplete)

Av tot funding £

Mercia 1 69 3,655,020 52,971 22 166,137 7,800,000 4,144,980 12,176,000 719,592Mercia Tech Seed

4 585,000 146,250 4 146,250 5,000,000 4,415,000 2,401,000 746,500

Creative 35 3,103,618 88,675 34 88,675 4,500,000 1,396,382 1,753,500 138,775Early Growth 60 4,817,390 80,290 40 120,435 7,000,000 2,182,610 13,138,000 448,885Growth 82 10,932,741 133,326 40 273,319 20,000,000 9,067,259 30,059,000 1,024,794Ent & Innovation 5 2,309,847 461,969 5 461,969 20,000,000 17,690,153 3,325,000 1,126,969Creative 13 1,460,000 112,308 13 112,308 1,460,000 0   112,308Technology 28 8,256,700 294,882 24 344,029 8,256,700 0 22,255,000 1,271,321TOTAL 296 35,120,316 118,650 182 191,914 74,016,700 38,896,384 85,107,500 656,983

Fund Status of Investments made  Green Amber Red Failed Sold   TOTAL

  No % No % No % No % No %  

MERCIA 1 11 50 5 23 1 5 4 18 1 5 22

MERCIA Tech Seed 2 4 100 0 0 0 0 0 0 0 0 4

ACF 9 26 8 24 7 21 9 26 1 3 34

AEGF 19 48 7 18 4 10 10 25 0 0 40

AGF 11 28 11 28 8 20 9 23 1 3 40

AEIF 2 40 2 40 1 20 0 0 0 0 5

CAF 2 15 1 8 1 8 5 38 4 31 13

ATF 5 21 1 4 7 29 2 8 9 38 24

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TOT 63 35 35 19 29 16 39 21 16 9 182

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Investments by publicly support Venture Capital Funds & Business Angel Networks based in the region- by area.

AREA TOTAL INV BY FUNDS£

TOT INV BY BA’s £

TOTAL INVESTED£

COVENTRY 11,072,183.00 435,000.00 11,507,183.00BIRMINGHAM 9,674,400.00 737,500.00 10,411,900.00WORCESTERSHIRE 4,543,354.00 2,291,395.00 6,834,749.00STAFFORDSHIRE INC STOKE 3,658,617.00 297,500.00 3,956,117.00WARWICKSHIRE 3,132,477.00 231,000.00 3,363,477.00DUDLEY 801,326.00 498,997.00 1,300,323.00SHROPSHIRE 578,348.00 50,000.00 628,348.00WOLVERHAMPTON 529,615.00 64,583.00 594,198.00HEREFORDSHIRE 299,995.00 185,000.00 484,995.00WALSALL 405,000.00 35,000.00 440,000.00TELFORD 250,000.00 0.00 250,000.00SOLIHULL 0.00 215,000.00 215,000.00SANDWELL 175,000.00 0.00 175,000.00TOTAL 35,120,315.00 5,040,975.00 40,161,290.00

Area FUNDS BUSINESS ANGELS TOTALCOVENTRY AND WARWICKSHIRE 14,204,660.00 666,000.00 14,870,660.00BIRMINGHAM AND SOLIHULL 9,674,400.00 952,500.00 10,626,900.00HEREFORD AND WORCS 4,843,349.00 2,476,395.00 7,319,744.00STAFFORDSHIRE INC STOKE 3,658,617.00 297,500.00 3,956,117.00BLACK COUNTRY 1,910,941.00 598,580.00 2,509,521.00SHROPSHIRE INC TELFORD 828,348.00 50,000.00 878,348.00TOTAL 35,120,315.00 5,040,975.00 40,161,290.00

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INVESTMENTS BY PUBLICLY SUPPORTED VC FUNDS AND BUSINESS ANGELS BY AREA

10,411,900.00

6,834,749.00

484,995.00 250,000.00 175,000.00628,348.00

215,000.00440,000.00594,198.00

1,300,323.00

3,363,477.00

3,956,117.00

11,507,183.00

0.00

2,000,000.00

4,000,000.00

6,000,000.00

8,000,000.00

10,000,000.00

12,000,000.00

14,000,000.00

COVENTRY

BIRM

INGHAM

WORCESTERSHIR

E

STAFFORDSHIRE IN

C STOKE

WARW

ICKSHIR

E

DUDLEY

SHROPSHIRE

WOLV

ERHAMPTON

HEREFORDSHIRE

WALS

ALL

TELFORD

SOLIHULL

SANDWELL

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INVESTMENTS BY PUBLICLY SUPPORTED VENTURE CAPITAL FUNDS AND BUSINESS ANGELS

14,870,660.00

10,626,900.00

7,319,744.00

3,956,117.00

2,509,521.00

878,348.00

0.00

2,000,000.00

4,000,000.00

6,000,000.00

8,000,000.00

10,000,000.00

12,000,000.00

14,000,000.00

16,000,000.00

COVENTRY ANDWARWICKSHIRE

BIRMINGHAM ANDSOLIHULL

HEREFORD ANDWORCS

STAFFORDSHIREINC STOKE

BLACK COUNTRY SHROPSHIRE INCTELFORD

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Lending by alternative finance providers such as Community Development Finance Institutions (CDFIs)Lender  Area served Lendin

g range £k

Lending 2005/6

Lending 2006/7

Lending 2007/8 Total 1/4/05 to 30/9/07Act to

30/9/07Act to 30/9/07

    No £k No £k No £k No £kAston Reinvestment Trust * Birmingham &

Solihull10 to 50 72 1,028 34 743 26 520 132 2,291

3b Birmingham & Solihull

7.5 to 10

20 142 7 49 0 0 27 191

Black Country Enterprise Loan Fund

Black Country 0.5 to 10

50 268 33 204 13 73 96 545

Black Country Reinvestment Society *

Black Country 10 to 50 19 317 16 377 6 189 41 883

Coventry and Warwickshire RT *

Coventry & Warks

1 to 40 36 402 14 183 21 123 71 708

IMPETUS (Marches Rural RT)*

Here, Worcs and Shrops

1 to 50 13 260 10 205 5 124 28 589

North Staffs Risk Capital Fund*

North Staffs 10 to 70 

7 389 8 396 3 80 18 865

Lending by CDFIs     217 2,806 122 2,157 74 1,109 413 6,072

Arrow Fund* Birmingham and Solihull

1 to 7.5 13 47 14 102 16 116 43 265

Michelin Development Fund North Staffs 5-50k 9 215 12 320 6 90 27 625Total Lending excl Princes Trust

    239 3,068 148 2,579 96 1,315 483 6,962

Princes Trust Regional 1to 5 500 1,200 427 1,250 190 540 1,117 2,990TOTAL lending in WM     739 4,268 575 3,829 286 1,855 1,600 9,952(* These lenders are directly supported by the Agency via grant funding from the Advantage Small Loan Programme – at present this only supports lending in areas designated as Objective 2 for funding from the European Regional Development Fund - ERDF)

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LOANS MADE BY ALTERNATIVE FINANCE PROVIDERS, EXCLUDING THE PRINCES TRUST FROM 1/4/05 TO 30/9/07 BY SUB REGION

LENDERS ARE COMMUNITY DEVELOPMENT FINANCE INSTITUTIONS (CDFI's) and THE ARROW FUND

2,747

1,4901,428

708589

202

45137

71 280

500

1,000

1,500

2,000

2,500

3,000

£k 2,747 1,490 1,428 708 589

No 202 45 137 71 28

Birmingham and Solihull North Staffordshire Black Country Coventry and WarwickshireHereford, Worcs and

Shrops

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Selective Finance for Investment in England 6 months ended 30 Sept 2007 6 months ended 30 Sept 2006Applications received – number 57 61Applications received – value (£’000) 9,783 8,778Offers made – number 56 51Offers made – value (£’000) 6,692 9,568Offers made – related capital expenditure (£’000) 44,803 61,428Offers made – jobs to be created 333 762Offers made – jobs safeguarded 329 577Cost per job (£) 10,108 7,146Grant offered as % of capital expenditure 14.9% 15.6%Grant paid – amount (£’000) 2,944 3,967Grant paid - Related capital expenditure (£’000) 24,744 47,437Grant paid – jobs created / safeguarded 927 1,044Applications received are similar to last year in both number and value. Offers made, whilst being similar in number, are significantly lower in value than last year, when there were some Board sized cases brought forward from the previous year. The cost per job increases the greater the number of sub-£100,000 offers made because job creation is not a requirement at that level.

Grant for Research and Development (GRD) 6 months ended 30 Sept 2007 6 months ended 30 Sept 2006Applications received – number 23 16Applications received – value (£’000) 1,737 1,013Offers made – number 13 8Offers made – value (£’000) 1,392 333Grant paid (£’000) 468 553Grant paid – related expenditure (£’000) 1,198 1,474Activity levels up on last year; DIUS about to commission an evaluation of the scheme; some amendment of intervention rates anticipated; significant work still to be done on “Innovation Finance” product within the portfolio of Business Support products.

NB Statistics of grant offers by area are being compiled

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Annex 5: Advantage West Midlands response to WMRA Recommendations from the Scrutiny Review of Access to Finance

WMRA Recommendations Advantage West Midlands Response to WMRA Recommendations

Progress on Actions as at 30th September 2007

R1 That the Regional Finance Forum, within its current review of governance arrangements, considers directly nominated and appropriate representation from business users. We would request and urge that new members are in place by January 2008.

We agree with this recommendation. The Regional Finance Forum embarked on a review of its operations, including its membership, in January 2007. An interim report was considered at the Forum’s April 2007 meeting and a final report is expected to be approved at the Forum’s July 2007 meeting. The recommendations include more explicit representation from user groups to complement the existing focus on finance providers and advisers. We would point out, though, that the Forum’s current membership includes at least two members who have strong connections with the West Midlands Business Council, so there has been user representation, even if not as part of the explicit definition of the membership.

Proposals for changes to Terms of Reference and Membership of the Forum were agreed at its meeting in July 2007. It was agreed that these will be formally adopted from January 2007. The changes include seeking two ‘business user’ nominations from the West Midlands Business Council and representatives from business related Forums such as the Minority Ethnic Business Forum, the Regional Womens Enterprise Unit and Social Enterprise Network, in addition to private and public sector intermediaries who are directly working with businesses seeking finance. A copy of the updated membership list is at Annex 1.

R2 That AWM ensures that the delivery of investment readiness activity is an integral part and measurable output of Business Link West Midlands. This should be reflected in the formal contracts with Business Link providers.

We agree with this proposal. It is already the case that the Investment Readiness programme is subject to a specific contract between AWM and Business Link West Midlands with targets related to businesses receiving awareness and education, businesses receiving complex development and post investment support and businesses accessing finance. In addition the overriding contracts with the Business Link providers include other required outputs, particularly in the area of the number of businesses to which “Intensive Assistance” is provided and the

As stated, the provision of Investment Readiness services including awareness raising and support via the www.westmidlandsfinance.com website and other marketing and promotion related activity is already included in the current contract with Business Link West Midlands. The Access to Finance Team will ensure that the delivery of investment readiness activity remains an integral part and measurable output of Business Link West Midlands when formal contract negotiations take place regarding activity

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increase in Gross Value Added (GVA) achieved by those businesses.

and funding from 1st April 2008.

R3 That Advantage West Midlands engages with regional education providers to enable the development of the necessary business skills set necessary to enhance the regional enterprise culture from Primary Schools onwards.

We agree with this recommendation. As a key partner within the Regional Skills Partnership, Advantage West Midlands already engages with the regional education and skills providers, funders and businesses. As part of this work the Regional Skills Partnership, including the local authorities, is contributing to the review of the Regional Economic Strategy. This includes the opportunity to strengthen the linkages between skills, innovation and enterprise and to work with employers to develop the higher-level skills they need to move into new markets with higher value-added products and services.In addition, Advantage West Midlands is working with partners to develop and deliver a fully integrated business support service that works with businesses to develop the skills and competencies they need to improve business performance and develop higher value added products and services.

Partners within the Regional Skills Partnership (including local authorities) are about to publish the latest annual Regional Skills Assessment. The Assessment reflects views from employers and employer networks about the current and future skill needs of employers, individuals and the regional economy. The Assessment is used by public sector funders of skills – including the LSC, HEFCE, AWM and European Social Funds to align skills provision with demand.

Partners are also playing an active role in ensuring that skills issues are fully reflected in the review of the Regional Economic Strategy and will be working with local authorities to explore the implications on skills of the sub national review and the proposals to strengthen the economic development role of local authorities.

R4 That the West Midlands Regional Assembly, within the scrutiny review of AWM’s support for the skills agenda should examine how their interventions support the development of core skills for business.

We agree with this recommendation. As stated above, we are concentrating the Agency’s resources on ensuring effective linkages between skills, innovation and enterprise and working with employers to develop the higher-level skills they need to move into new markets with higher value-added products and services. We therefore believe that the focus of our Skills policy reflects the West Midlands Regional

Scrutiny is scheduled but has not yet started. For West Midlands Regional Assembly (WMRA) to agree with the Agency’s skills team.

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Assembly’s interest in this area and we shall welcome discussing this with you in the course of the Scrutiny.

R5 That AWM, in implementing the Independent Performance Assessment Improvement Plan, seeks to secure a greater awareness and understanding of provision of Access to Finance initiatives. The proposed methodology to be presented to the Regional Finance Forum by October 2007.

We recognise that communication can always be improved. We have made efforts to communicate the Access to Finance initiatives, in particular through the westmidlandsfinance.com portal, the region’s Investment Readiness programmes, articles in Business Advantage and through presentations to various groups such as Accountants, Professional Services groups, Cluster conferences and others. We believe that the consolidation of the region’s Business Links into a single operation comprising Gateway, Brokerage and specialist Manufacturing Brokerage, the consolidation of the westmidlandsfinance.com portal into the main businesslinkwm.co.uk website and the extension of the R2i Investment Readiness programme to cover the whole region will also contribute to greater awareness, understanding and success in securing appropriate finance. In addition we shall make the Business Finance Conference an annual event and shall continue to publicise Access to Finance initiatives through a range of other media.

A briefing paper setting out proposals for an Access to Finance Marketing and Promotion Plan has been prepared for the Regional Finance Forum meeting on 26th October 2007 (see Agenda Items 3c(i)

R6 That AWM investigates the feasibility of establishing and operating a Regional Development Bank as a pilot project as part of the development of the Action Plan for the revised West Midlands Economic Strategy.

The fundamental issue is whether or not Small and Medium Sized Enterprises (SMEs) have access to the finance they need to grow and develop. In the West Midlands we now have a range of sources of finance backed by the public sector ranging from Community Development Finance Institutions (CDFIs) and

See comments in Column 2. This is not currently regarded as a priority action.

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the Small Firms Loan Guarantee Scheme to a comprehensive range of equity gap venture capital funds and business angel support schemes. In a way we therefore already have a network of provision which could be said to be a virtual Regional Development Bank. Whether putting these into a formal structure would make more effective provision of appropriate finance is questionable. However, as noted above we have already commissioned a review looking at the adequacy of provision of debt-based finance. We have also commissioned a further review into the effectiveness and sustainability of the region’s CDFIs. The terms of reference of both reviews request not only consideration of the adequacy of current provision but also recommendations as to the structure through which any proposals should be implemented. In addition in 2007/08 we shall be commissioning a review of the region’s venture capital funds with a view to identifying the most appropriate action to take as they move out of investment mode. Again this will include a request for recommendations as to how best to implement any proposed actions. We will therefore receive recommendations which will contribute to our thinking regarding a Regional Development Bank, but we would prefer at this stage to concentrate on ensuring the provision of appropriate financing options rather than committing to a Regional Development Bank.

R7 That the Regional Finance Forum, as a means of securing

We agree with this recommendation. We already produce an annual report for the

An Annual Report is being prepared for submission to the AWM Board meeting in

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continued engagement, provide an annual report for the basis of discussion with appropriate interested parties including the Regional Economic Development Officers Group and the West Midlands Business Council commencing in January 2008.

Advantage West Midlands Board (in November of each year) and we shall make this available through the Agency’s website. In addition we shall give consideration to developing this report further as a publication, providing not only a bottom up view of the impact of the Agency’s interventions but also a macro view of changes in the region’s finance activity over the year.

November. This will form the basis for a more widely circulated Report.

R8 That the West Midlands Regional Assembly undertakes a scrutiny review, commencing in May 2008, of Business Link West Midlands.

We agree with this recommendation. We accept that the performance of Business Link West Midlands will be a key factor in securing a greater awareness and understanding of provision of Access to Finance initiatives in the region and supporting businesses in accessing appropriate finance, whether from the public or private sectors.

For the WMRA to schedule and agree with AWM.

R9 That the Department for Business, Enterprise and Regulatory Reform undertakes an urgent and fundamental review of the Small Firms Loan Guarantee Scheme.

We share your concerns regarding the operation of the Small Firms Loan Guarantee Scheme following the implementation of the recommendations of the Graham Review which were put into effect from 1 December 2005. We regard it as, potentially, a very effective tool to assist businesses which have inadequate security to obtain mainstream banking facilities. We have ourselves commissioned a review entitled “An assessment of the extent of market failure in the provision of debt-based finance” and this should give us information on shortcomings in the current operation of the Scheme. In addition the first Annual Report on the Small Firms Loan Guarantee Scheme is to be tabled in Parliament prior to the Summer recess. A further related matter is that the

A letter was sent to Stephen Timms, Minster for Competitiveness at DBERR on 15th October setting out the Regional Finance Forum’s concerns over SFLG.

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Department for Business, Enterprise and Regulatory Reform (formerly the Department of Trade and Industry) have recently (on 22 June 2007) launched a Consultation entitled “Simplifying Business Support: A Consultation”. This Consultation explicitly asks whether the business support outlined in it (which includes “Loan finance for young businesses” via a guarantee mechanism) covers the key needs of business. Based on the outcome of our own review and on the information contained in the Annual Report we shall determine – with partners - what response to make to the Consultation and also the approach to adopt with the Department for Business, Enterprise and Regulatory Reform on our and your concerns regarding the Small Firms Loan Guarantee Scheme.

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