Written evidence from Simon Gray of the
British Private Equity & Venture Capital Association
ABOUT THE
BVCA
The British Private Equity & Venture Capital
Association (BVCA) is the industry body and public policy advocate
for the private equity and venture capital industry in the UK.
The BVCA Membership comprises over 230 private equity,
midmarket and venture capital firms with an accumulated total
of approximately £32 billion funds under management; as well
as over 220 professional advisory firms, including legal, accounting,
regulatory and tax advisers, corporate financiers, due diligence
professionals, environmental advisers, transaction services providers,
and placement agents. Additional members include international
investors and funds-of-funds, secondary purchasers, university
teams and academics and fellow national private equity and venture
capital associations globally.
As a result of the BVCA's lobbying and reputation-building
efforts, private equity and venture capital today have a public
face. Venture capital is behind some of the most cutting-edge
innovations coming out of the UK and that many of us take for
granted: the medical diagnostic services we use in hospitals,
the chips in our mobile phones, the manufactured components of
our cars, and the bioethanol fuels that may run them in the future.
Likewise, private equity is behind a range recognisable High Street
brands, such as Boots, Phones4U, Birds Eye, National Grid and
Travelodge.
At present, little is known about the possible
makeup of Local Enterprise Partnerships (LEPs). The Coalition
document simply refers to "joint local authority-business
bodies brought forward by local authorities themselves to promote
local economic development". That proposals should emerge
from local authorities rather than from central government is
a sensible approach but without knowing the detail of any such
proposals it is difficult to comment extensively. That said the
BVCA supports the Coalition's continuation of a regional investment
strategy. The idea behind RDAs to create a neutral space for business
and politicians to come together to attract private investment,
is a sensible one and we would like to see some aspect of this
retained—but we do recognise that their performance has
been mixed.
Individual RDAs have highlighted examples of
investment undertaken on their watch, but how much of this is
explicitly down to the contribution of the RDA and represents
genuine added value is open to question. After nearly a decade
of operation, the UK economy is still heavily tilted towards London
with very little in the way of new private sector employment created
outside of the South East. On that basis RDAs have failed in their
principle task to rebalance the economy away from London and the
South East. We share the Coalition's analysis that a regional
investment strategy is necessary but that a new approach is called
for.
The direct experience of the venture capital
sector as regards the RDAs has been, perhaps unsurprisingly, extremely
varied. There are many part of the country where venture capital
has not been advanced much by the RDA system. There are others,
however, where there is a strong sentiment among venture capital
houses that their RDAs have been extremely valuable actors and
they would strongly prefer that the LEPs which might be created
in their areas retain at least some of the features of the former
RDAs. The North East of England is an area where the existence
of an RDA has measurably improved investment in venture capital
activities. Venture capital in the North East went backwards after
3i took the decision to close its Newcastle office a number of
years ago and only experienced a revival when One North East emerged
to foster the expansion of venture capital firms such as Northstar
and NEL. There is a very strong body of opinion here that it is
vital for venture capital that there is a permanent investor presence
in the North East and a body of a size capable of a seriously
strategic approach. If a patchwork of small LEPS which regarded
each other as rivals were to be established instead, investment
in that region would certainly suffer.
The Business Secretary has said in evidence
to the BIS Committee on 20 July that he will not be prescriptive
about form and indeed he said that he would look favourably on
proposals that maintained a strong regional structure allied to
sub-regional LEPs (Q10). For this to work, locally elected politicians
must draft the proposals with support from local businesses where
it is sought.
I am encouraged on that basis to see the progress
made in the East Midlands where four Local Authorities have come
together to produce a joint proposal that focuses on "Provide
strategic leadership to establish local economic partnerships
... Co-ordinate economic development activity including sites
and buildings, training and skills and business start-ups".
It also makes mention of coordination with neighbouring LEPs—an
important point for the reasons state above.
The question of whether they are "business
led" or "joint local authority—business bodies"
is an important one. We believe that not only should LEPs have
a business chair but their makeup should be predominantly from
business as well. Aiming for say a 50:50 split between local councillors
and business leaders risks creating the atmosphere of a political
bunfight as politicians from different parties work at cross purposes
as they try to secure investment for their respective wards (our
members have experience of this happening within the RDA structure
and under LEPs the problem would likely be more acute). It is
also important that within the business community, a broad demographic
of stakeholders is identified to participate and where appropriate
to sit on the board. Appointments to the boards of LEPs should
be subject to scrutiny, approval and veto by local councils and
mechanisms should be in place for continuous democratic accountability.
But the day to day decision making of the LEP must operate in
an apolitical space with decisions based on economics and not
party politics.
Likewise we would expect the specifics of LEP
remits to be determined at a local level but when devising an
approval process, we would suggest that Government encourage LEPs
to focus mainly on attracting inward investment. In the past they
have strayed into a much broader ambit with varying effectiveness.
By seeking to confine LEPs to attracting investment their effectiveness
will be increased through better focus as well controlling costs
in what is difficult spending climate for local and central government
alike.
RECOMMENDATIONS
Proposals should emerge from locally elected
politicians but approval from the Secretary of State should be
subject to the LEP being business led, preferably with a business
chair.
Their remit should be strictly constrained to
attracting inward investment—access to finance is better
handled by Capital for Enterprise as a discreet process.
The performance of LEPs should be strictly monitored
and audited with rigorous democratic accountability—approval
should be subject to periodic review with success judged on genuine
added value with respect to inward investment.
LEPs have the potential to bring about lasting
social benefits. But their success should be judged on delivering
private sector jobs and investment to the regions and rebalancing
the UK economy. To deliver lasting change, their activities must
be commercially driven.
12 August 2010
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