The London SME Fund Ex-Ante Assessment Annexes 1. Fund Summary 2. Ex-Ante Assessment Completeness Checklist 3. Block 1 – SME Market Analysis - Summary Findings 4. Block 1 – SME Market Analysis - London Overview 5. Block 2 – Investment Strategy 6. Supplementary Block 2 – Conclusion 7. Circular Economy (CE) Report 8. Supplementary Work – Delivery Structure London SME Fund of Funds – Project Summary Updated March 2019  Applicant  SME Wholesale Finance London Ltd (SMEWFL)  Investment  3A ‐  Promoting entrepreneurship, in particular by facilitating the economic exploitation of new ideas and fostering the  Priorities  creation of new firms, including through business incubators.    3C ‐ supporting the creation and the extension of advanced capacities for product and service development.     3D ‐ supporting the capacity of SMEs to grow in regional, national and international markets, and to engage in  innovation processes  Total Project Costs  £100,000,000 comprising:  ‐ £50,000,000 EIB  ‐ £35,000,000 ERDF  ‐ £5,600,000 LWARB*  ‐ £9,400,000 Legacy Funding    *London Waste and Recycling Board LEP Areas covered  London  Description  The project is to set up a fund of funds (FoF) that will provide loan and equity finance to SMEs in London. Once  established, the FoF will allocated funding to four sub‐funds that will invest in SMEs operating in sectors that are  important in enhancing London’s competitiveness, including the emerging circular economy. The four sub‐funds will  be:    ‐ £45m Venture fund: this will provide equity investments between £100k and £2m for SMEs, including those  in the circular economy.  ‐ £27.5m Loan fund:  this will have an investment range of £100K to £500K and will support SMEs seeking debt  facilities to expand their business. ‐ £27.5m Mezzanine Fund: this will support SMEs seeking expand their business but have larger funding  requirements of between £500k and £1m.   ‐     The FoF will be established and managed by SME Wholesale Finance London Ltd (SMEWFL), which was set up in 2004  by the GLA specifically to carry out such functions. SMEWFL will procure organisations to set up and manage the  three sub‐funds.     Key Milestones Start Date of Fund of Funds: July 2018  Sub‐funds Procurement Completed: April 2019   Possible Fund Launch: May 2019  ERDF Financial Completion Date: 31 December 2023  ERDF Practical Completion Date: 31 December 2023  End of Investment Period: 31 December 2023   Fund End Date: 31 December 2028 (10 years from sub‐funds’ procurement)    Key Outputs C1 ‐ Number of enterprises receiving support: 170  C3 ‐ Number of enterprises receiving financial support other than grants: 170  C5 ‐ Number of new enterprises supported: 21  C7 ‐ Private investment matching public support to enterprises (non‐grants): £168.8m  C8 ‐ Employment increase in supported enterprise: 3,562 Ex-Ante Assessment Completeness Checklist Financial Instrument: London SME Fund of Funds The Ex-Ante Assessment has been considered and adequately covers the following: Key checklist points CPR Ref Yes/No Identification of market problems existing in the country or region in which Article 37 (2) (a) Yes - see Block 1 report and as the FI is to be established summarised in Block 2 (section1.1). See also section 5 of Circular Economy (CE) report. Analysis of the gap between supply and demand of financing and the Article 37 (2) (a) Yes – as above. identification of suboptimal investment situation Quantification of the investment (to the extent possible). Article 37 (2) (a) Yes – as above. Identification of the quantitative and qualitative dimensions of the value Article 37 (2) (b) Yes – see section1.4.1 of Block 2 added of the envisaged FI. report. In addition, see section 9 of the CE report. Comparison to the added value of alternative approaches. Article 37 (2) (b) Yes – see section 1.2.1 of Block 2 report and section 9 of CE report. Consistency of the envisaged FI with other forms of public intervention. Article 37 (2) (b) Yes – see section 1.4.3 of Block 2 report and section 9 of CE report. State Aid implications of the envisaged FI. Article 37 (2) (b) Yes – see section1.4.4 of Block 2 report and section 8 of CE report. Identification of additional public and private resources to be potentially Article 37 (2) (c) Yes – see section1.5 of Block 2 raised by the envisaged FI and assessment of indicative timing of report and section 8 of CE report. national co-financing and of additionally contributions (mainly private). Estimation of the leverage for the envisaged FI. Article 37 (2) (c) Yes – see section1.5 of Block 2 report and section 8 of CE report. Assessment of the need for, and level of, preferential remuneration based Article 37 (2) (c) Yes – considered at section 1.4.1.2 on experience in relevant markets. of the Block 2 report and Collation of relevant available information on past experiences, Article 37 (2) (d) Yes – see section1.3.1 of Block 2 particularly those that have been set up in the same country or regions as report and section 7 of CE report. the envisaged FI. Identification of main success factors and/or pitfalls of these past Article 37 (2) (d) Yes – see section1.3.2 of Block 2 experiences. report and section 7 of CE report. Using the collated information to enhance the performance of the Article 37 (2) (d) Yes – as above. envisaged FI (e.g. risk mitigation). Definition of the level of detail for the proposed investment strategy Article 37 (2 (e) Yes – see section1.2 of Block 2 (maintaining a certain degree of flexibility). report and section 8 of CE report. Definition of the scale and focus if the FI in line with the results of the Article 37 (2) (e) Yes – as above. market assessments and value added assessment. Selection of the financial product to be offered and the target final Article 37 (2) (e) Yes – see sections 1.2.2 and recipients. 1.2.3.2 of Block 2 report, section 8 of CE report and supplementary work document. Definition of the governance structure of the FI. Article 37 (2) (e) Yes – see section 1.2.3.2 of Block 2 report and section 9 of CE report. Selection of the most appropriate implementation arrangement and Article 37 (2) (e) Yes – see section 1.2, section 9 of definition of co-financing structure (including any envisaged combination CE report and supplementary work with grant support). document. Set up and quantification of the expected results of the envisaged FI be Article 37 (2) (f) Yes – see section 1.6 of Block 2 means of output indicators, result indicators and FI-performance report, section 10 of CE report and indicators as appropriate. supplementary work document. Specification of how the envisaged FI will contribute to deliver the desired Article 37 (2) (f) Yes – see sections 1.4.2 and 1.6 of strategic objectives. Block 2 report sections 4,8 and 10 of CE report. Definition of the monitoring system in order to efficiently monitor the FI, Article 37 (2) (f) Yes – see sections 1.7.1 of Block 2 facilitate reporting requirements and identify any improvements areas. report and section 9 of CE report. Definition of the conditions and/or the timing in which a revision or an Article 37 (2) (g) Yes – set out in section 3 of the update of the ex-ante assessment is needed. Block 2 conclusion document and sections 8 and 9 of CE report. Ensure that the flexibility, and trigger points, is reflected in the monitoring Article 37 (2) g) Yes – see section 9 of CE report. and reporting provisions. Following Issue of Funding Agreement: Target Date: Actual Date: The Ex-Ante Assessment is submitted to the monitoring committee (GPB) Article 37 (3) October 2017 for information purposes and in accordance with Fund specific rules. Publication of summary findings and conclusions of the Ex-Ante Article 37 (3) Assessment within three months of their date of finalisation (Publication November 2017 on MA Website) Comments: N/A The Documents submitted as the Ex-ante Assessment (attached), together with the Project Application, have been checked and are accepted by the Managing Authority (MA) as meeting the requirements of an Ex-ante Assessment as set out in the Common Provisions Regulation (CPR) – Regulation 1303/2013 - Title IV - Article 37. Intermediate Body Assessor Name: Kenroy Quellennec-Reid Signature: Date: 4 October 2017 Using Financial Instruments for SMEs in England in the 2014-2020 Programming Period A study in support of the ex-ante assessment for the deployment of EU resources Block One – summary findings Final Report January 2015 European Investment Bank Disclaimer Any disclosure of this report to a third party is subject to this disclaimer. This report has been drafted by Regeneris Consulting Ltd at the instruction and under the supervision of the European Investment Bank (EIB) for use by the EIB and by the UK Government Department for Communities and Local Government (CLG). The contents and layout of this report are subject to copyright owned by CLG save to the extent that copyright has been legally licensed to the EIB or is used by the EIB and by Regeneris Consulting Ltd under licence. Any views expressed herein reflect the current views of the author(s), and may not in any circumstance be regarded as stating an official position of the EIB or CLG. Opinions expressed herein may differ from views set out in other documents, including other research published by EIB or CLG. The content of the report is based on market conditions prevailing, and on data and information obtained by the author(s) from various external sources and assumed to be accurate, correct and reliable, at the date of publication / submission, therefore changes affecting such matters after the time of submission may impact upon the content. Nothing in this report constitutes investment, legal, or tax advice to the CLG (or to any other person), nor shall be relied upon as such advice. Specific professional advice should always be sought separately before taking any action based on this report. The EIB cannot be held responsible for any loss or damage howsoever arising from the use of this report or of the information contained herein by any person other than EIB. Version Date issued Scope Version 1 4-12-14 Includes first full drafts of Sections 1, 3, 4, 5, 6, 7, 8 and 9. Excludes 2 (policy), regional overviews, lessons learnt, additional resources and overall conclusions Version 2 19-12-14 Addresses EIB comments on v1 Adds sections on policy, lessons, added value Moves area assessment framework to just before the area profiles. Version 3 13-01-15 Updated conclusions and addition of section 11 and area overview annex (separate document) Version 4 6-02-15 Amended for comments from DCLG GDTs, BBB and BIS Using Financial Instruments for SMEs in England in the 2014-2020 Programming Period 2 European Investment Bank Contents Contents ............................................................................................................................................................. 3 1 Introduction ............................................................................................................................................... 7 1.1 Delivery of the ERDF Programme 2014-20 .......................................................................................... 7 1.2 Key Aspects of the Approach .............................................................................................................. 8 1.2.1 Assessing the Finance Gap ............................................................................................................ 8 1.2.2 Spatial Focus of the Assessment .................................................................................................. 8 1.2.3 Involvement of the LEPs and their Partners ................................................................................ 8 1.2.4 Focus of the Assessment .............................................................................................................. 9 2 Policy Context Summary ........................................................................................................................... 10 2.1 Introduction ......................................................................................................................................... 10 2.2 UK Government Policy ....................................................................................................................... 10 2.2.1 Sub-national Economic Development ........................................................................................ 10 2.3 European Policy ................................................................................................................................... 10 2.3.1 State Aid Rules ............................................................................................................................. 11 3 The Finance Gap and Market Failures Summary .................................................................................... 12 4 UK and Regional Economic Performance and Prospects Summary ..................................................... 13 4.1 Economic Growth ............................................................................................................................... 13 4.2 Implications for FIs ............................................................................................................................. 13 5 Debt Finance for Microbusinesses in England .......................................................................................... 14 5.1 Introduction ......................................................................................................................................... 14 5.2 Demand ............................................................................................................................................... 15 5.2.1 Microbusinesses ........................................................................................................................... 15 5.2.2 Business Starts .............................................................................................................................. 16 5.3 Supply .................................................................................................................................................. 16 5.3.1 Debt Finance ................................................................................................................................. 16 5.3.2 Personal Finance .......................................................................................................................... 17 5.3.3 Community Development Finance Institutions ............................................................................ 17 5.3.4 Credit Unions ................................................................................................................................ 17 5.3.5 Asset Backed Finance ................................................................................................................... 18 5.3.6 UK Government Schemes ............................................................................................................. 18 5.3.7 Regional JEREMIE Funds and other ERDF Schemes ..................................................................... 18 5.3.8 Local Schemes .............................................................................................................................. 19 5.3.9 Conclusions ................................................................................................................................... 19 Using Financial Instruments for SMEs in England in the 2014-2020 Programming Period 3