Are we expecting too much from the Development Bank of Wales? Whilst its latest results published this week shows that it invested £125m into 430 businesses during 2023-24, more detailed examination suggests that it is not achieving in several key areas.
For example, one of its key targets between 2017 and 2022 was to increase the amount of microloan funding (less than £50,000) from £6m to over £40m per annum. Yet for 2023-24, only £8m of funding was provided to the smallest businesses and start-ups in Wales which equates to only 6% of the total invested in Welsh businesses.
In contrast, 30% of its investment was committed to commercial and residential property development deals and this is set to increase to 45% according to its current five-year strategy which suggests a very different focus on funding to what was originally envisaged in terms of helping Welsh businesses.
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When we put the plan together a decade ago for a new organisation to boost Welsh business, the key rationale for the creation of the development bank was to address gaps in the market i.e. the public sector should not displace the private sector but address a market failure in the provision of finance to SMEs.
This is most prevalent in start-ups and microbusinesses where many face difficulties in getting debt finance from traditional funders such as banks. Clearly that isn’t happening to the extent it should and disappointingly, the previous commitment to increasing the amount of micro funding has now been quietly dropped from its corporate plan for 2022-27.
Supporting innovative businesses is also a key role for the development bank given the disproportional impact of such firms on productivity and competitiveness. Whilst nearly £9m has been provided to 31 innovation and technology companies, this equates to just over £280,000 per business.
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This is well below what such businesses obtain elsewhere with the latest British Venture Capital Association data shows that the average amount of seed funding from venture capital to 海角视频 firms was £1.2m in 2023.
This considerable difference in funding again feeds the narrative that the development bank is not providing the right level of support to boost the tech sector in Wales and organisations such as Fintech Wales have suggested that its overall approach is risk averse which stifles innovation and the true potential of Welsh start-ups.
It is also worrying that the development bank is struggling to complete equity deals given its importance in increasing the flow of additional funds into Wales is in relation to equity funds.
Prior to the latest results, whilst only 10% of the firms supported by the development bank had received equity investments, those that do get equity investments attract more three times as much co-financing than those receiving debt funding which suggests that a greater focus on equity could attract additional finance for Welsh businesses.
Unfortunately, that hasn’t happened and in the last year, equity investments by the bank fell from £23m to £12m in 2023/24, a massive decline of 88% at a time when they should be filling a gap as private sector venture capital is investing less.
Indeed, private sector co-investment also fell over the year from £115m to £50m despite the bank stating, in evidence to the House of Commons Welsh Affairs Committee earlier this year, that the biggest area where it can have an impact for every pound that invested is to get more leverage in from the private sector.
The only positive result for the development bank is that 4,406 jobs were created or safeguarded against a target of 3,779 which is slightly ironic given it has admitted is not an integral part of its approach to supporting businesses. Indeed, as its chief executive recently stated, “we have specific targets for jobs created and jobs safeguarded. But we do not operate specifically to those targets.”
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Therefore, even its most ardent supporters will have to admit that it is a poor performance from the development bank which should, by now, know how it can have the biggest impact in supporting Welsh businesses.
With such underwhelming results, it could be argued that it has lost its way and has no clear strategy which addresses the real needs of the market.
Should it be focusing on supporting start-ups and microbusinesses where there is a market gap? Should it be providing proper financial support to innovative businesses at the same level as the 海角视频? Is it a funder of businesses or an economic development agency that focuses on creating jobs through those businesses? Should it be devoting nearly a third of its funding to supporting property development projects?
By being a ‘jack of all trades’, it is not achieving the impact that it could have on Wales and its business community. And ten years after the recommendation to create a development bank for Wales to support Welsh business, perhaps it is now time for its board of directors to undertake a thorough review of what it does, which businesses it should back, and how it can be the best that it can be in supporting an innovative and entrepreneurial Welsh economy.