Page 4: Trends in the provision of finance
One recent trend - management buyouts (MBOs) - has led to the search for better ways of financing SMEs. This is where the management of the business is given the opportunity to buy ownership and control of a firm, in the hope they can improve the productivity of the business. This has been a key reason for the growth of venture capital.
Venture capital is risk capital, usually provided in the form of a package, to provide investment for SMEs. Venture capital companies look for good returns as companies build and then provide themselves with an exit mechanism. This is particularly useful for a business that is expanding rapidly but is not yet ready for the stock market.
Another area of growth, particularly for companies that require either start-up or early development capital, is that of corporate venturing – large companies seeking to invest funds in SMEs. For example, Reuters, as a large company, set money aside to create a ‘greenhouse fund’ that invests in high tech companies. By spreading its investments across a range of exciting businesses, some of its investment will be in companies that move on to become significantly larger and very successful.
There is also a real desire by many businesses to ‘go public’ and launch their shares on one of the markets of the London Stock Exchange, particularly the AIM or secondary market.