Business

Invest NI pulls plug on new VC equity fund amid claims of earlier round 'review'

In October 2019 Invest NI launched two new equity funds - the TechStart II Seed Fund and Crescent Capital IV Development Fund - as part of its Access to Finance portfolio. The latter has now been pulled. Pictured at that launch are (from left) William McCulla, director of corporate finance at Invest NI with Jamie Andrews, partner at Techstart Ventures and Colin Walsh, partner at Crescent Capital
In October 2019 Invest NI launched two new equity funds - the TechStart II Seed Fund and Crescent Capital IV Development Fund - as part of its Access to Finance portfolio. The latter has now been pulled. Pictured at that launch are (from left) William McCulla, director of corporate finance at Invest NI with Jamie Andrews, partner at Techstart Ventures and Colin Walsh, partner at Crescent Capital
By Gary McDonald Business Editor

INVEST NI has suddenly shut down an equity fund aimed at pumping venture capital into start-up companies and small businesses in the early stages of innovation.

The £65 million Crescent Capital IV Development Fund, which planned to offer companies within the technology, life sciences and manufacturing sectors investments of up to £2.5 million, was launched in October 2019.

But it has emerged that the fund, delivered on Invest NI's behalf by long-established Belfast-based venture capital investment firm Crescent Capital, won't now proceed because the private sector funding can't be raised.

And it comes as the Irish News can reveal that a review has been launched into the running of a previous Crescent Capital fund.

It is understood a number of companies in the third fund have been interviewed as part of a probe into how monies may have been managed.

Invest NI, in a post on its web page late last Friday, said: "The Crescent IV fund will be brought to a close due to the difficulties in raising private sector funding as a result of the impact of the Covid-19 pandemic.

"Created as part of the Access to Finance portfolio, which provides loan and equity funding to SMEs, this fund was designed to support companies in the technology, life sciences and manufacturing sectors.

"The Covid-19 pandemic has brought major changes to the private equity landscape in Northern Ireland and globally, with Invest NI taking steps to reassess how companies are supported in their recovery and growth plans."

And in a post on its web page, Crescent confirmed the closure of the fund, which it said is "due to the considerable challenges arising from the turmoil created by the Covid-19 pandemic, in raising the required second close matching private investment."

Its founder and partner Colin Walsh added: "The current fund-raising challenges are unprecedented, particularly for emerging venture capital markets such as Northern Ireland, and Crescent IV’s orderly closure includes the return of all initial investor drawdowns."

The decision has come as a shock, particularly as Ireland, north and south, appears awash with potential venture capital despite the global pandemic.

Indeed delegates at an InterTradeIreland conference in Belfast yesterday heard that VC funding into Ireland "is at record levels, making this the perfect time to secure capital".

The Crescent Capital IV Development Fund was launched amid much fanfare 18 months ago to build on the success of forerunner funds, from which some of Northern Ireland's most exciting technology companies have emerged.

At the time Mr Walsh said: “This launch is a great milestone. It's the fourth venture capital fund to be established by Crescent, which has made investments in 38 companies across its three prior funds.

“Some of Northern Ireland’s most exciting technology companies have emerged from these portfolios and we look forward to building on these past successes by investing in early and development stage companies through their growth phase and on to exit.”

Many companies in the north have benefitted from funding and guidance provided during their early stages by venture capitalists, who are long-term investors willing to take entrepreneurial risks alongside company founders.

But all VC funds have their winners and losers, and 12 companies were invested in under the £22.5m Crescent II between 2004 and 2010.

Of these, nine resulted in a benefit to the fund and contributed to the north's economy by creating or safeguarding more than 350 jobs.

Two of the investments were acquired by overseas companies and the technology and employment were fully or mainly exited from Northern Ireland, while one company failed and one was sold for a nominal sum.

All of the privates capital (£15m) was returned, while from its £7.5m investment, Invest NI had £780,000 returned, and an evaluation of the fund found that Crescent II had achieved two of its five stated target KPIs.

Asked by the Irish News last night about a reported probe into the Crescent III fund, an Invest NI spokesperson said: "A statement on the closure of Crescent IV remains as is on our website. We have nothing further to add."