Keith Morgan, CEO of the British Business Bank, on tackling regional imbalances in finance

1. www.british-business-bank.co.uk
@britishbbank
Tackling regional
imbalances in finance
Keith Morgan, CEO
UKBAA Northern Investment Summit
28th March 2017

2. www.british-business-bank.co.uk
@britishbbank
An overview of the BBB
• Aim to change the
structure of the
finance markets
for smaller
businesses, so
they work more
effectively and
dynamically
• In turn, this will
help businesses
prosper and build
economic activity
in the UK
• PLC since 1st
November 2014.
An Economic
Development
Bank
A PLC – 100%
owned by UK
Government
Working with over
90 partners
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3. www.british-business-bank.co.uk
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How we operate
START UP STAY AHEADSCALE UP
Start Up Loans Angel CoFund
Enterprise Capital
Funds
Help to Grow
Investment
Programme
ENABLE
Enterprise Finance
Guarantee
Improving the information available to businesses seeking finance
Venture Capital
Catalyst
Regional programmes: NPIF and MEIF

4. www.british-business-bank.co.uk
@britishbbank
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Our impact to date
We currently
support over
£3.4bn
of finance to SMEs. 54,000
small businesses supported.
partners
We participate
in a further
£5.1bn
of finances to small mid-cap
businesses.
… but where does the evidence suggest there is more work to do?

5. www.british-business-bank.co.uk
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Bank lending broadly aligns to regional SME population…
Share of bank lending and businesses by region
0%
5%
10%
15%
20%
25%
London South East North West East of
England
West
Midlands
South West East
Midlands
Yorkshire
and the
Humber
Scotland Wales North East
% of business population 2016 % of total value of loan facilities approved (Q4 2015-Q3 2016)

6. www.british-business-bank.co.uk
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0%
10%
20%
30%
40%
50%
60%
70%
London South East East of
England
North
West
Scotland South
West
North East Yorkshire
and the
Humber
West
Midlands
Wales East
Midlands
Northern
Ireland
% of High Growth Enterprises 2013 % of total value of equity deals
… whereas equity is skewed to London & the South East
Equity investment and high growth businesses by region
High Growth Enterprises are located in
all regions - but equity investment is not
proportionately distributed across the
UK

7. www.british-business-bank.co.uk
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Why does this matter?
Start-ups (0-2 years old) as a proportion
of all firms (2001-2010)
39.5
23.8
21.2
20.319.519.519.4
17.5
16.015.8
14.0
12.4
9.1
BRAFRAGBR
21.3
LUXNLDNZLAUTUSASWECANBELNORITAFIN
% of start-ups with 1-9 employees that
grow to 10+ within 3 years (2007)
7.6
6.7
6.26.0
5.6
5.0
4.8
4.44.34.2
3.43.33.2 3.2
BRALUXNORBELUSACANFRA SWEFINAUTITANLDGBRNZL
The UK’s scale-up record is relatively weak

8. www.british-business-bank.co.uk
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13
8
8
85
60
19
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Scale-ups are important for jobs and productivity
Job creation by category of firm (%, 2011-2014)
<1
% of all companies
100
SME HGF
Large HGF
Non HGF
% of jobs created
100
Young firms

9. www.british-business-bank.co.uk
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Common obstacles to equity finance
• Supply
– Low relative returns
(average 10 year returns of 23.5% for small MBOs and only 8% for VC)
– High cost of due diligence, lack of track record, lack of exit opportunities
• Demand
– Dilution of ownership
– Uncertainty about how to access equity finance
• ‘Ecosystem’
– Thin market prevents the wider ecosystem developing
– Of the 372 active fund managers in the UK:
• 288 have their headquarters in London
• 18 have their headquarters in the North
• 6 have their headquarters in the Midlands
9

10. www.british-business-bank.co.uk
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Government or
local government grants
Venture Capitalists
Equity crowd funding
Peer to Peer
lending platforms
Business Angels
Mezzanine finance
London South (excl. London) North
Awareness of products is one obstacle
London SMEs
have a greater
awareness of
equity products
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Awareness of finance products by region

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0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Mezzanine finance
Business angels
Peer to peer
lending platforms
Crowd funding platforms
Venture capitalists
Government or
local government grants
London South (excl. London North
Awareness of specific providers also varies regionally
London again
shows higher
awareness of
most types of
finance
Awareness of specific finance providers by region

12. www.british-business-bank.co.uk
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How to rebalance the picture
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Financing
Sector Place
Industrial Strategy
• Green Paper published January
2017
• Horizontal approach based
around10 pillars
• Focus on addressing regional
imbalances
Actions already underway:
• Expanding BBB VC Catalyst
Programme
New commitments:
• Research - to build
understanding of the obstacles
to firms accessing capital
• Scale-up Champion
• Awareness-raising

13. www.british-business-bank.co.uk
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BBB ‘place’ specific funding solutions
Regional funding solutions:
Venture Capital solutions with a regional focus:
£30m ECF
Fund 1: £19m
Fund 2: £65m
£85m
£39m
£260m
£400m+ £250m+

14. www.british-business-bank.co.uk
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1) Patient Capital Review
• Will explore access to long-term finance
• Led by HM Treasury
• Separate Industry Panel chaired by Sir Damon Buffini
• Consultation seeking wider views expected spring 2017
• Final report at Autumn Budget 2017
2) Scale Up Task Force
• Overseen by ‘Scale-Up Champion’ Margot James MP
• As well as finance, will look at more general support needed by firms with
growth ambition
Other initiatives underway

15. www.british-business-bank.co.uk
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Increasing supply of equity and
growth capital is one part of the
solution.
BBB also focuses on the demand
side through the Business
Finance Guide, which raises
awareness of options available:
• Simple guide to finance options at
each stage of business life cycle;
• Wide range of supporters;
• Links put in front of c.1m businesses
through direct marketing and
partners.
Source: British Business Bank & ICAEW, June 2016
Building awareness

16. www.british-business-bank.co.uk
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Questions?

17. British Business Bank plc is a public limited company registered in England and
Wales registration number 08616013, registered office at Foundry House, 3
Millsands, Sheffield, S3 8NH. As the holding company of the group operating under
the trading name of British Business Bank, it is a development bank wholly owned by
HM Government and is not authorised or regulated by the Prudential Regulation
Authority (PRA) or the Financial Conduct Authority (FCA). British Business Bank
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British Business Finance Ltd (registration number 09091928), British Business Bank
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their registered office at Foundry House, 3 Millsands, Sheffield, S3 8NH. They are not
authorised or regulated by the PRA or FCA.
Capital for Enterprise Fund Managers Limited is a wholly owned subsidiary of British
Business Bank plc, registered in England and Wales, registration number 06826072,
registered office at Foundry House, 3 Millsands, Sheffield, S3 8NH. It is authorised
and regulated by the FCA (FRN: 496977).
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A complete legal structure chart for British Business Bank plc and its
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