BBI backs Columbia Lake venture debt fund with £40m

British Business Investments has committed £40 million (€44.5 million; $50.4 million) to Columbia Lake Partners’ second venture debt fund.

The investment gives Columbia Lake Partners Fund II a total of £140 million of funding capacity at its first close.

Columbia Lake Partners is a London-based venture debt investor providing loans of £3 million to £10 million to venture capital-backed technology businesses, primarily in the software industry. The offering is intended to complement traditional VC funding to allow companies to grow with less dilutive capital.

Investments can be made as part of an equity round, between equity rounds to provide time to build enterprise value, or to fund acquisitions.

Craig Netterfield, managing partner at Columbia Lake, said: “Once a company draws capital from us, they typically repay over three years. Rarely it’s from cashflow; more typically, we will be paid out of new equity financing based on a higher valuation or we are lending to bridge the gap for firms as they prepare for a sale.”

Four investments have been made so far and the fund expects to fund between 50 and 60 companies. It has an eight-year lifespan and a target of up to £250 million.

The firm said it focuses on growth prospects when making loans to take account of the cashflow and profitability issues typically seen by venture-backed companies.

“These companies are typically loss-making, which means lending to them can’t be formulaic,” Netterfield explained. “You can’t just look at EBITDA. You’ve got to really understand what they do and what their growth is going to be like – how do they acquire customers and is the business scalable?”

The fund expects to reach a final close within the next 12 months and has received backing from a range of institutional investors including pensions and family offices.