MT columnist Luke Johnson is one such sceptic. In the May issue of MT, he writes: 'The problem [the BGF] claims to address doesn't exist: there are at least 50 funds of various sorts which already target this market' (including his own vehicle Risk Capital Partners). In fact, he says, 'There is simply no shortage of capital for industry that falls into this category... All viable propositions of this type can obtain money on pretty attractive terms.' The real problem, he suggests, lies with the smaller, earlier-stage firms who rely on angel funding; there is a shortage of capital here, he says, and it 'would serve a true economic and social purpose' for the banks to get involved. The fact that the banks have chosen to focus on this market proves that this is just a 'PR stunt' designed to appease the industry's critics.
But even if you accept the fund is necessary, has it been structured in the right way? The independent Rowland review suggested that since just 2% of companies of this size would even consider it giving up equity, a mezzanine debt fund - which ranks below senior debt but pays a higher return, without the company necessarily having to give up equity - would be the most sensible approach. According to the Telegraph, Santander pulled out of this venture entirely because of its focus on taking equity stakes - which also, of course, means the banks could end up making fat profits. So it's not all that charitable.
Some of the criticisms of the BGF seem misplaced (it will have different priorities and timeframes to a standard private equity fund, for instance), and arguably any mechanism that get money to companies is welcome. But it's hard not to see this in the light of all the negative publicity the banks have had lately, not to mention the ongoing regulatory crackdown. It'll be interesting to see whether the BGF gets anywhere near its target of 40 deals a year; that's the only way we'll really know whether this is a genuine problem area.