The Business Growth Fund is investing in Ireland’s scale-ups

From his office near Londonderry, Joe McGinnis steers the housebuilder that was founded by his father. Braidwater has revenues north of £15m and has developed homes across Northern Ireland for four decades. But when McGinnis, 33, sought investment to take the company to the next level, he had few options.

“We are in one of the most challenging regions, not only in Ireland and Britain, but possibly in Europe,” he said. “Because we’re a border region and we’re fairly limited in terms of local infrastructure, we don’t have major multinational firms here.” As a result, raising capital is “notoriously difficult” for local companies.

Two years ago, however, Braidwater became the first company in Northern Ireland to receive backing from the Business Growth Fund (BGF), a £2.5bn pool of capital put together by Britain’s largest banks.

The BGF is now targeting the Irish Republic. Last week it made its first investment there — £5m for the Renegade Spirits whiskey distillery in the southern city of Waterford.

Not everyone is comfortable with the BGF moving away from its mission statement of providing capital to small and medium-sized British enterprises, though.

The investment company was set up in the aftermath of the financial crisis, when credit for small firms was in short supply.

Under pressure from Sir Vince Cable, who was business secretary at the time, Britain’s leading lenders banded together to establish the BGF in 2011. It takes equity stakes, rather than simply offering loans.

The BGF has backed 172 companies, including two in Northern Ireland, 20 in Scotland and three in Wales. It has deployed £1.1bn of funds and seen eight successful “exits” from businesses in its portfolio, which have delivered returns for its shareholders — Lloyds, RBS, Barclays, HSBC and Standard Chartered.

The BGF’s cheques have made a huge difference for the likes of McGinnis, who said he has increased Braidwater’s sales by 80% since last year — thanks to the undisclosed sum paid by BGF for its equity stake. The company, led by founder and executive chairman Patrick McGinnis, has 30 staff.

The BGF is now looking to capitalise on the buoyant economy in the Republic, which has largely recovered from its banking crisis.

Stephen Welton, the chief executive, said the BGF wanted to make a permanent mark on the Republic. It plans to open an office in Dublin, where the Silicon Docks area is bursting with tech start-ups.

Inspiration to build the next big corporate thing is never far away; the city is also home to the European headquarters of technology heavy-weights such as Google and Facebook.

But the BGF’s move into the Republic has sparked some criticism. “I thought they were set up to support British businesses,” said one investor who backs technology start-ups. At its launch, the BGF was portrayed as a way for the bailed-out lenders RBS and Lloyds to give something back by bolstering Britain’s economic revival.

Supporters argue that the BGF’s move into Ireland is financially savvy, as it will spread risk beyond Brexit Britain. “There is significant opportunity to help more of Ireland’s ambitious smaller and medium-sized companies become bigger businesses,” Welton said.

“There are plenty of companies starting up but not enough scaling up. They need access to appropriate and sustainable sources of funding alongside bank debt to support growth.”

Recent reports suggest that the BGF is preparing a new Irish fund, worth up to €200m (£167m), with the state-backed Ireland Strategic Investment Fund and the Republic’s largest banks. The BGF declined to comment.

According to BGF research, there are 86,000 companies in the Republic with revenues of £5m to £100m, compared with 30,000 in Northern Ireland.

RiverRidge, also based in Londonderry, is the second company in Northern Ireland to win support from the BGF.

The waste management operator, which has more than 200 staff, received £10m last year. Brett Ross, the managing director, said the money was needed to finance growth. Annual revenues are currently more than £40m.

Ross, 47, is one of the bosses keen for the BGF to focus on Northern Ireland. Young businesses south of the border already enjoy ample funding, he said. “The Republic of Ireland is going through a very significant boom. There has been more encouragement for entrepreneurs and start-ups.”