WestBridge closes £30m UK SME fund

Tough fundraising environment led the SME investor to revise its initial £50m target - but its first-time team has already set its sights on a second fund.

WestBridge Capital has closed its first stand-alone SME-focused fund on a revised £30 million (€36m; $48m) target, the firm said in a statement. The likes of South Yorkshire Pension Fund and the European Investment Fund have committed to the vehicle, which has been in the market for nearly three years.

The tough fundraising environment led WestBridge to revise its initial target down from £50 million. Having launched in summer 2009, the fund held a £10 million first close in June 2010 and a second close on £17 million in October 2010. The fundraising was due to finish last year but was extended by nine months, managing partner Guy Davies told Private Equity International.

The fundraising climate in the last three years has been the worst we've seen in two decades

Guy Davies, WestBridge Capital

This is a familiar situation to GPs, particularly in Europe, where record numbers of private equity firms are chasing a diminished pool of investor cash. According to PE Connect, PEI’s data service, there are 1,249 GPs out looking for a total of $685.4 billion this year. Only 347 GPs managed to close funds in 2011.

“The fundraising climate in the last three years has been the worst we’ve seen in two decades. We are one of only a very small handful of first-time teams to raise a meaningful amount of money in that time,” said Davies.

“Given that climate and the support we’ve had from investors like the EIF we are delighted to have closed the fund at this level,” he said.

The firm has already set its sights on a second fund of around £100 million to be raised once the existing fund is 75 percent invested, Davies said.

WestBridge operates an unusual model, working in partnership with an invitation-only group of high net worth industrialist co-investors. 

“In a deal we typically have about 20 people invested alongside the fund at modest levels. But they are very well connected – they help businesses grow more quickly so by the time you get to exit, the returns should be higher,” said Davies.

The new fund has already invested £7.3 million in businesses, said Davies, with £2.3 million of which coming from the co-investment group. So far it has backed the MBOs of training software group e2train, aerospace component manufacturer Aero Stanrew and Energist Group, which makes specialist equipment used in cosmetic surgery.

At a time when LPs are putting pressure on managers to put more ‘skin in the game’, WestBridge's GP commitment was over 5 percent, Davies added. He also says that the firm has delivered 3x returns on capital and a 58 percent gross internal rate of return since inception.

Formed in 2008 in a buyout of Wales Fund Managers, WestBridge typically invests up to £5 million in UK SMEs. 

Venture Capital Partners acted as placement agent on the fundraising.