This idea of a national investment bank is that government can invest where others fear to tread. Government, for example, has a lower cost of funds than the private sector – not unusual when you can put a gun to someones’ head to gain that funding, which is what tax ultimately comes down to. There is also the thought that government can have a longer time scale than the private sector investor. That this runs into no politician being able to see over that fence of the next election doesn’t stop people using the thought.
But, OK, so, Scotland now has its very own National Investment Bank. This is, of course, going to change everything:
Laser and quantum technology developer M-Squared Lasers has revealed a new £32.5 million package of debt and equity finance that the company says will help it to scale up activities.
The support includes a £20 million debt facility agreed with Santander, and a £12.5 million injection of funding from the newly established Scottish National Investment Bank.
How excellent, and how cool!
The M-Squared investment represents the very first deal completed by the new Scottish National Investment Bank, which had received approval for its establishment and £2 billion capitalization from the European Commission within the past month. The commission applies state aid rules on European Union members.
Commenting on the development, Scotland’s First Minister Nicola Sturgeon said: “The Scottish National Investment Bank will help to tackle some of the biggest challenges we face now and in the years to come, delivering economic, social and environmental returns.
“It is hitting the ground running with its first major investment in M-Squared – a great example of the ambitious and innovative companies we have here in Scotland that will be key to our economic recovery and future prosperity.”
M-Squared’s CEO Graeme Malcolm, who co-founded the company with Gareth Maker nearly 20 years ago, commented:
“We are delighted that the Scottish National Investment Bank has invested in M-Squared as its very first business – our shared commitments to society and the environment makes this an ideal partnership that will enable accelerated growth and progress in frontier technologies.”
Can’t you just taste the glory of government being able to do what the private sector cannot. Except, well:
The money has been used to refinance earlier loans provided by Barclays, and has also enabled investor BGF to sell part of its stake in the business.
M-Squared announced that the Santander debt facility would allow the firm’s founders and management team to “fund the acquisition of the substantial part of BGF’s current shareholding”.
“BGF will realise the majority of its existing shareholding in M-Squared, but will continue to retain a meaningful stake going forward having first invested in the business in 2012 as a long-term partner,” announced the laser firm.
Patrick Graham from BGF added: “M-Squared, one of BGF’s first investments, received £6.4 milion across three rounds of funding over the course of the past eight years. The company has grown ten-fold since, crystallizing a strong return for BGF.”
Actually, Scotland’s National Investment Bank is buying out the venture capital people who have been keeping this company going to the past 9 years since its founding and first funding.
Which isn’t at all, what the justification for using our money to invest in lazers is, is it?
In this case, Scotland uses its budget not to back ideas that are too stupid for people to risk their own money on, but to back ideas that Santander (and those venture capitalists) were already risking their own money on. There is no way the pols and bureaucrats can identify wise investments.
And – just like many “tranches” of loans to Greece – the loot flows to the earlier backers, like a good Ponzi scheme. Greece gets little new funding, and little of that flows into greater productivity.
We also have no idea what the terms are to the likes of Santander. What are they lending against? Premises? plant? The costs between salaries and invoice payment? Or developing tech?
And what’s the return to each? If you’re taking a big gamble, you want big profits.
How exactly does swapping government ownership for venture capital ownership result in “accelerated growth and progress”? On first blush it seems the precise opposite would be coming–a deceleration of growth and progress.
Especially as the company CEO, in the same breath, gives lip service to “commitments to society and the environment” (and no one ever knows what that means). One way it could impede progress is that MPs who aren’t bold enough to impose costly feel-good mandates on all companies would feel justified imposing them on companies benefitting from state “investment.”
If the previous backers are getting out that does not suggest that they anticipate a lot of growth in future. Looks more like a bale-out than an investment.
My experience of working with Government is that it is not as stupid as one might think. HMG wants venture capitalists to pick winners and fund them. So to encourage this they offer the incentive that they will buy them out if they generate a cash flow. Because HMG has provided exit the Venture Capitalists can move on to funding their next startup. My guess is the bank will syndicate the loans and the taxpayer will not carry much risk.
Um, then, why do it?
Around here, even anti-business corporations cheer for expandeded portfolio authority for the Export-Import Bank (“the Bank of Boeing”), which loans cheap money to foreign airlines to buy American 737s. Their “guess” is that there is no budgetary impact at all, provided no one ever defaults, so for no money “spent,” we get a huge “multiplier effect.” They, too, are “not as stupid as one might think.” Evil is more like it.
I can just see Scottish eyes lighting up at the thought of “frickin’ lasers!!!”
Mike Myers, aka Dr Evil aka Austin Powers is a Scots-Canadian out of Liverpool of Scottish extraction.
Did I get the Scotch/Scottish/Scots thing right?