The Investment Fund for Scotland - a catalyst for success

The Investment Fund for Scotland (IFS) was launched by the British Business Bank at an event at the Technology & Innovation Centre, University of Strathclyde last month.

This £150m fund has been launched by the British Business Bank in partnership with DSL Business Finance, The FSE Group, and Maven Capital Partners, providing funding for smaller businesses in Scotland.

Colleague Molly Morgan and I attended the launch event.

First to speak was Louis Taylor, Chief Executive of the British Business Bank, who highlighted the factors which led to the fund’s introduction, emphasising the importance of backing innovation. He mentioned that, while financial returns hold significant importance, a key driving factor was to create stronger business ecosystems and communities.

Lord Offord of Garvel, Minister for Exports, spoke about the need for equal opportunities for small businesses across the whole of the UK. He acknowledged that while talent is UK-wide, finance and investment opportunities are not being equally distributed. This fund, whilst creating local investment opportunities, will also have a positive impact on the ecosystem by creating employment opportunities and encouraging aspiration and ambition in Scotland.

Ken Cooper, managing director of the British Business Bank, confirmed that the aim of this fund is to improve access to finance for smaller businesses and to make sure it is distributed across all areas of Scotland. A lot of research and thought went into the structure of the funds, which is being distributed in tranches of: £20m allocated for smaller loans, £40m allocated for debt finance, and £50m allocated for equity finance – the final £40m being reserved for future opportunities.

Stuart Yuill, executive director of DSL Business Finance, discussed DSL’s role in distributing the funds allocated to the smaller loans. He highlighted the significant role that small businesses play in the economy, mentioning that 95% of businesses are classed as small.

Norrie Cook, Head of Fund for the FSE Group, discussed the distribution of the fund allocated to debt finance. He identified various positive impacts of the IFS including its potential to drive productivity and create new jobs.

Finally, the last allocation of the fund, equity finance, is being distributed by Maven Capital Partners. The speech was given by partner David Milroy, who acknowledged that many management teams are forced to look outside of Scotland for financing and affirmed that this fund will help to close that gap.

While discussing the importance of access to investment opportunities throughout Scotland, it is also relevant to look at the use of external financing among small businesses. Throughout 2022, while businesses were still dealing with the prolonged effects of COVID-19, the use of external finance among small businesses declined. However, during the beginning of 2023, 43% of small businesses in the UK were using external financing, showing a promising recovery from the prior year. (https://dailybusinessgroup.co.uk/2023/10/edinburgh-top-for-innovation-outside-golden-triangle/)

It is also important to consider the distribution of this finance. Academic spinouts continue to see a significant amount of financing and investments, with almost half of all equity transactions in the UK over the last 12 years included a spinout. Life sciences is another industry seeing a significant amount of investment and financing, which is now the largest sub-sector across Edinburgh, Glasgow, Dundee and Aberdeen in terms of deal numbers and investment value, is the life sciences industry.

Overall, the IFS Launch Event highlighted the current investment gap in Scotland and the impact this is having on smaller businesses. Investment is such an important part of our economy and opportunities should be available in all areas, big or small. While there has previously been a decline in external financing among small businesses, this has been slowly recovering during 2023, and with the introduction of the IFS, we may see a faster recovery rate from the decline in 2022. The key takeaways from the event were that the driving factors of the IFS is to create equal opportunities, help small businesses grow, create more high-value jobs, encourage innovation in Scotland, and overall create a stronger economy. Exciting times are ahead for business owners all over Scotland.