YFM celebrates 25 years of first venture capital trust

YFM Equity Partners (YFM) is celebrating the 25th anniversary of the launch of its first Venture Capital Trust (VCT) this month.

David Hall, managing director of YFM

After listing British Smaller Companies VCT in April 1996 at a value of £4m, the Leeds-based private equity firm went on to launch British Smaller Companies VCT2, with the two trusts today worth £185m and investing into dynamic, early stage businesses across the UK.

The trusts were initially limited to investments of less than £1m, over the years that has increased, but, today, for many businesses, it is still limited to no more than £5m in a year.

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YFM, which has offices in Leeds, Manchester, Birmingham and London. said VCTs have played a vital role in bridging the funding gap for the UK’s most innovative, young businesses. It is estimated that since their launch in September 1995, VCTs have generated, in total, over £1.4bn of exports and created more than 27,000 jobs across a wide range of sectors.

David Hall, managing director of YFM, said: “The emergence of a dynamic VCT sector has placed greater emphasis on early stage investment, delivering important social and economic benefits by helping fledgling businesses throughout the UK to grow and scale.

“Over the last 25 years, we have seen huge changes. When we made our first VCT investment into Clitheroe-based Fresh Roast Coffee in 1996, the internet didn’t exist, Amazon was a small start-up business and it was eight years before Facebook was launched.

"One of our early investments made in 1998 was GO Outdoors, which at the time had one store in Hathersage. Over the next 18 years, turnover grew from £2m to over £200m with employee numbers rising from 33 to more than 2,000."

Mr Hall said the type of businesses YFM has supported through its VCTs has evolved over time, with more traditional engineering businesses benefitting in the early 2000s, through to the emergence of rapidly growing, knowledge-intensive technology companies today.

“Having adapted to reflect changing needs, VCTs have grown and developed, enabling us to take a longer term view and to back pioneering technologies which are vital to the future of the economy," he said.

"As the only Yorkshire-headquartered VCT business, we believe that the trusts have a significant role to play in helping the Government to achieve its intention of addressing inequality and levelling up the North and the South.”

One recent example is YFM’s support of enterprise software company Matillion with its VCT funds making an initial investment of £4m into the Manchester-based business in 2016. In February 2021, Matillion, which now employs 270 people, completed a $100m series D fund-raising with investors from Silicon Valley – one of the largest PE investments in the North in the last five years.

Matthew Scullion, co-founder and CEO of Matillion, said: “Six years ago, YFM was the first investor to recognise our potential and believe in our vision.

"They used their VCT managed funds to do exactly what they were devised for - they took a risk in backing an early stage tech business, enabling us to grow, attract more funding and so create jobs and revenue.

“In the UK, we still have a lot to learn about entrepreneurialism, but there’s no doubt that VCTs have helped encourage British investors to change their approach to ‘venture’ and accept a degree of risk.

"YFM are at the vanguard of this – after their initial VCT funding, we have undergone a further three rounds of funding, raising over $160m in total. We are now one of the few successful enterprise software businesses in the UK, and we wouldn’t be where we are today without YFM and its VCT funds.”

YFM made a number of VCT investments last year including £4.8m into award-winning Leeds marketing automation platform, Force24 last November; and £3.75m into disruptive interdealer broker for global commodities, ARRACO Global Markets in December.