Applicants must demonstrate that the proposed ECF management team is suitably qualified, and collectively possesses the knowledge, experience and capability needed to successfully build, manage and exit a portfolio of private equity investments.
Where specific skills or expertise are lacking in the management team, applicants must demonstrate how appropriate experience will be brought into the team and must show that the associated costs are fully budgeted for in the financial projections submitted as part of the application. Applicants must outline the staffing requirements of their proposed ECF, and demonstrate that proposed levels of staffing will be sufficient to operate the ECF effectively.
Where the activities of a proposed ECF would fall within the financial services regulatory regime under the FSMA, the applicant must also demonstrate that they meet the requirements of that Act (for example in relation to FSA authorisation), or have credible plans to do so.
Primary assessment criteria
CfEL will pay close attention to whether the proposed management team demonstrates the potential to succeed in:
attracting a flow of quality investment propositionsfrom businesses seeking riskcapital finance;
carrying out rigorous „due diligence‟to assess the suitability of investmentpropositions put forward by businesses seeking finance;
structuring and pricing investmentsandnegotiating termswith investeebusinesses;
providing management support and adviceto investee businesses, for example byhelping to develop and implement successful growth strategies;
monitoring and reportingon the performance of the ECF‟s investment portfolios;
realising returnsfrom investments through third party transactions, including later-round investments, trade sales and initial public offerings; and
the management team‟s knowledge and experience of operating a successful businessand, where relevant, their knowledge and experience of anyspecific business sectorsin which the proposed ECF would concentrate its investmentactivities.
Guidance for Prospective ECF Managers
Evidence of past experience against all these criteria is an advantage, but not a pre-requisite: applicants need to demonstrate that the ECF would have access to all the skills and competencies needed to ensure a good prospect of achieving commercial success.
Secondary assessment criterion
CfEL will have regard to the proposed ECFs‟ likely contribution to increasing capacity and developing a sustainable skills basein the „equity gap‟ market. Forexample, this couldapply where fund management teams are coming together to form an ECF, where the ECF is encouraging new hands-on investors into the market, or where it is committed to training and developing staff in particular aspects of equity gap investing.