Two years on: GLIF already making an impact
In May 2019, the Mayor of London announced to a packed chamber at London’s City Hall that the Greater London Investment Fund (GLIF) was open for business. This was the culmination of tireless work by Funding London, Greater London Authority (GLA) and other partners to put in place a regional investment fund to support London’s early-stage businesses.
With capital of £100 million, this was the largest SME fund established by Funding London and GLA. Most of this capital was committed from European sources such as European Regional Fund (ERDF) and European Investment Bank (EIB), just ahead of Brexit – but, fortunately, we can keep it! Funding also came from ReLondon and the reinvestment of returns by Funding London. As a fund of funds, GLIF’s capital is deployed through three investment funds: an equity fund managed by MMC Venture; and two debt funds managed by The FSE Group.
Given recent reports about the amount raised by businesses in the capital, some may ask whether such a fund is needed. However, even in a dynamic economy like London’s, with its vast financial ecosystem, structural impediments exist that prevent bright, ambitious entrepreneurs and businesses turning their ideas into successful ventures. This was confirmed by the study we carried out, in conjunction with EIB, to inform GLIF’s investment strategy. It reported total unmet demand from SMEs of around £240 million per annum for equity and £2,420 million for debt. Even if we assumed that only 10% were viable propositions, that is still £266 million per year (quite a large sum!) that is not reaching some of London’s most promising businesses.
GLIF was therefore established to address this finance gap. It operates in the segment of the market that is poorly supported by other lenders and investors. Nevertheless, investments from GLIF are made on a commercial basis, not least because we want to (i) make a financial return to reinvest; and (ii) ‘crowd-in’ investments by co-investing with other investors.
Like most publicly backed funds, GLIF has the twin objectives of providing finance and supporting economic development goals in London – the so called double bottom-line. This approach is very much akin to an impact fund. GLIF’s overarching strategy is to provide finance to innovative SMEs – in sectors that are important for enhancing London’s competitiveness – to allow them to scale-up and achieve their growth ambitions. The hypothesis is that targeted support for high-growth businesses will lead to high levels of jobs creation and ultimately to the continued growth of London’s economy.
We have seen this in action with companies such as Gousto, the UK market leader in recipe box delivery, that received early-stage investment from one of Funding London’s earlier funds. Gousto is now a unicorn, and is creating 1,000 new jobs this year (literally doubling its workforce!) in and outside London, as reported in a recent visit by the Chancellor of the Exchequer, Rishi Sunak. This is a good example of how seed investments in innovative London SMEs can ultimately help to drive growth – not only in London but in other parts of the UK – as the economy recovers from the pandemic.
How have we done so far?
After two years of investing, we are starting to make an impact. Through its investment funds, GLIF has invested just over £26 million in 65 exciting businesses. This has attracted additional private sector investment of £85 million, thereby facilitating over £100 million of investments in some of London’s most innovative, early-stage businesses. So, on average, GLIF has helped to facilitate £50m of investment per year, or 19% of the £266m unmet demand that was identified in our study.
During its first operational year, GLIF invested just over £8 million in 23 companies. This was a very good result for a newly established fund, where our debt fund manager was also new to London. With the onset of the pandemic, and with businesses desperately trying to survive, it was important for GLIF to continue providing support to viable businesses. During this period, GLIF more than doubled its investments – £18 million was provided to 42 businesses. Some of this was provided through the government’s Coronavirus Business Interruption Loan Scheme (CBILS).
Given the severe economic impact of Covid, GLIF repurposed some of its debt fund’s allocation so as to provide ‘resilience loans’ rather than growth loans. Gaining accreditation under CBILS provided the confidence to continue lending during the crisis, and GLIF has utilised the scheme well. At the end of May 2021, just over £11 million was committed to 27 businesses. Of this amount, over £7million has been lent so far. CBILS has now ended and GLIF is accredited under its replacement scheme, the Recovery Loan Scheme (RLS). Like CBILS, RLS will provide guarantee cover for loans to businesses, as we move from lockdown to recovery, and ultimately growth.
Investments from GLIF’s funds have range from £60k to £930k in a diverse range of businesses. This has enabled them to support development activities such as scale up or launch new products, invest in staff, and expand into new markets. The companies supported by GLIF are mainly from the sectors identified in the Mayor of London’s economic development strategy as being important to London. The value of investments made in each sector is shown in the chart below. There was a marked increase in investments to tech and digital businesses during the pandemic as companies adjusted their models to service their customers remotely.
Jobs and Growth are starting to emerge
We have made great strides regarding job creation, with 422 high quality jobs created by the portfolio companies over the two-year period. Not unsurprisingly, the rate of job creation dipped at the start of the pandemic as companies took steps to minimise costs. However, the numbers picked up slightly during the second half of 2020 and there was a sharp uptick during the first quarter of 2021.
While it is still early days, we are starting to see strong growth in the portfolio. Some companies were undoubtedly affected by the impact of Covid, especially those with huge exposure to hospitality and retail. However, most are getting on with their plans and trading well. Since the start of this year several portfolio companies have raised additional funding to further accelerate their growth; these included:
Synthesia – the AI video generation platform, raised $12.5 million Series A;
Lookiero – Europe’s leading personal shopping service, raised $30 million Series B;
Ably – raised $70 million Series B to power synchronised digital experiences in real time;
YuLife – raised $70 million Series B to reinvent life insurance; and
TreasurySpring – a fintech company whose platform delivers new digital pipelines to connect cash-rich firms to institutional borrowers raised $10 million Series A.
Also, from our debt funds, companies like Powervault (which designs and manufactures home energy storage units) have gone on to raise equity finance having secured debt funding.
Other Economic Impacts: Supporting underrepresented entrepreneurs and circular economy businesses
Another vital area of work for us is addressing the disparities for underrepresented entrepreneurs in accessing finance. Recent studies by British Business Bank, Extend Ventures and Cornerstone Partners highlighted the disproportionally small amounts of finance raised by businesses led by female and ethnic minority founders. Given these results we had to do more. So far, GLIF has invested just under £10 million to companies led/managed by underrepresented founders. However, it was recently announced by the Mayor of London that GLIF will seek to commit at least £20m of its capital to businesses led/managed by female, ethnic minority, or disabled entrepreneurs, within the next two years.
In additional to jobs and growth, GLIF is also working to support the development of circular economy (CE) business models, in conjunction with our partner ReLondon. This is an important component in the ambitious drive to make London a zero-carbon city by 2030. We have ring-fenced £14 million from the equity fund specifically for CE businesses. Over a two-year period, we have invested £3.7 million in eight businesses. This has leverage £14.3 million from private investors and has led to the creation of 70 jobs. Our CEO recently wrote a piece on how we are helping to build London’s circular economy.
We are extremely pleased about this great beginning for GLIF. It is showing strong performance and is starting to make demonstrable impacts in terms of job creation, growth, building London’s circular economy, and providing crucial finance for underrepresented entrepreneurs. As things transition from lockdown to recovery, GLIF, through its investment funds, will continue to increase the amount of capital made available to London’s small businesses over the next couple of years. Get in touch if you or your clients are seeking finance to innovate and grow, as the economy recovers.