Freesteel Blog » FOI on Capital for Enterprise

FOI on Capital for Enterprise

Thursday, July 21st, 2011 at 8:59 am Written by:

A complete waste of time was had one morning recently, following a Decision Notice document dump that came through the post shortly before we set off for France.

The government wants to improve the structure and development in the national high-tech economy, which it knows is dysfunctional on account of there being so many successful and utterly incompetent large businesses, while at the same time small competent businesses that should grow and displace them are not able to survive.

Hint: why not stop giving huge failing contracts to these big businesses, and break them up into a scale where it can be done by small suppliers, like it says in the manifesto?

Instead, what the government did was consult with the experts in business capital finance who are responsible for the situation, and they persuaded them to bail them out with a public subsidy on the basis of what they called the equity gap.

My interpretation of the logic is as follows:

  • Only companies above a certain size of £x millions are able to thrive — for various reasons, such as the unnecessary largeness of government contracts, the need to support a legal team probably larger than the programming team, and so forth
  • The only way a new company could expand to that critical size is through capital investment of at least £y millions, because doing business at a smaller size was not an option.
  • However, the venture capital industry is only willing to put money into companies of a certain size of at least £z millions, because they need to live off a healthy cut of the business.
  • So there is an equity gap between the value of the entrepreneur selling their own house for £0.q millions and £min(x, z) millions which creates a barrier that protects the larger companies from any effective competition.

The answer was, among a lot of other programmes, Capital for Enterprise staffed entirely by people from the finance industry. I learnt about it only when Vero Software got bailed out by a benefactor of this fund.

I read up about some of the bureaucratic arrangements in the programme and found this part of the guidance.

Hm. I wonder what these Investee Summary Sheets look like, and what they’re doing with them?

Apparently nothing. They wouldn’t give me any. And the Information Commissioner concurred that they shouldn’t give me any.

Also, the ICO confirmed on the record that There Is No Database:

The National Audit Office made a report last year, with the summary:

“These venture capital funds help small, often innovative, businesses that otherwise may have struggled. And there is evidence that some businesses have benefited from this support. But, in the absence of clear objectives and baselines from the start, coupled with poor financial performance to date of early funds, the Department’s programme cannot currently be said to demonstrate value for money. Finally, there is no information publicly available about the funds. BIS should be more transparent, without compromising confidentiality.”

It’s worth reading the report which confirms my evidence that the Department is not even internally conducting any analysis whatsoever about how all their bailed out venture capital companies are performing, in terms of extracting bloated fees, or their habit of overlooking viable businesses on the basis of their bogus financial models — hence the whole nonsense about the equity gap.

At the very least, they should be capturing enough information to prove or disprove the truth of the equity gap myth, and whether this intervention is actually filling it — if it exists.

So, the Investee Summary Sheets are filed in a box somewhere and completely ignored. And no one is allowed to see them.

What are the “Findings of Fact”:

Oh, an Information sheet — JUST FOR ME!

How exciting.

I can’t wait to see what it looks like:

Hm. That’s not very informative.

And the reason why no one is allowed to see any of these Investee Summary Sheets is…

So, to be clear, if the ECF decides in their infinite wisdom that a company who has applied for funding is not up to the job of accepting investment, this determination should be kept secret in the commercial interests of the that company in case they are able to con money out of some other investor who would otherwise be more wary of parting with their money if only they knew.

In other words, the ECF are saying that they want people to put money into companies they know are bad investments.

Either that, or they don’t want their investment decisions ever to be scrutinized. Because, as we well know, the business itself perfectly well knows what’s what; it’s all passing around the grape vine among the same crowd of people; because when an application from a company lands on your desk, you will of course ring round your colleagues to see if anyone has heard of it; and they will tell you; that’s how business gets done; and if one of your friends who is acting as an agent for that company has polished it into a professional standard application, so much the better.

Anyhow, just to draw this to a close, the logic obviously doesn’t apply to companies that we do know have applied.

Accordingly:

Please can I be sent:

1) A copy of the Investee Summary Sheet for Vero Software plc, as disclosed in its loan agreement press release 2009-12-04.

2) A copy of the Investee Summary Sheet for Documentric, as disclosed in an article dated 2009-09-29.

3) A copy of the Investee Summary Sheet for Qire, as disclosed in a press release on 2010-06-01.

4) A copy of the Investee Summary Sheet for Monumental Games, as disclosed in a press release dated 2009-12-16.

5) The number of Investee Summary Sheets that have been received by ECF in 2009 (the year of establishment), 2010 and 2011.

6) The name of Capital for Enterprise Fund portfolio company described in Paragraph 33 of the Notice, which suffered adverse publicity resulting in a noticeable aversion by investee companies.

1 Comment

  • 1. Freesteel&hellip replies at 31st August 2011, 1:55 pm :

    […] following my FOI request about the information they received, they supplied me with what appears to be a close approximation of an Investee Summary Sheet for […]

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