Innovative small businesses are set to benefit from two new Enterprise Capital Funds (ECFs), backed by more than £40 million of government funding, small business minister Margaret Hodge has announced.

The two new funds bring the total number of funds awarded ECF status to six, exceeding the initial expectation that only five funds would be supported in this current phase of investment.

Hodge said the funding would help cutting-edge SMEs get access to the finances they need to grow.

“The very good bids for the Enterprise Capital Fund has enabled us to direct more capital to address the equity gap. Putting money into these Funds shows our determination to support entrepreneurs and to keep the UK at the top of the world league on entrepreneurship."

The ECF programme was established to invest a combination of private and public money in small high-growth businesses seeking equity finance of between £500,000 to £2m.

The newly-established funds are The Dawn Capital Fund and The Midlands Enterprise Capital Fund.

The Dawn Capital Fund is a £37.5 million fund, which includes £25m of government funding, has been created by a group of experienced entrepreneurs and fund managers.

It will focus on traditional industries where pioneering companies are able to adopt innovative technology to improve products and services.

The Midlands Enterprise Capital Fund is a £30m generalist fund, which includes £18m of government funding.

It aims to focus on investments in the Midlands region as well as other regions.

And it is the only fund to come out of the initial pathfinder bidding round that has significant backing from institutional investors, such as Local Authority pension funds, in this case.

Catapult Venture Managers will manage the Fund.

David Quysner, Chairman of the Capital for Enterprise Board that advised the government during the Pathfinder round, said the funds would make positive additions to the ECF portfolio.

“The institutional backing that the Midlands ECF has secured proves that this programme can attract larger investors, while the Dawn Capital Fund demonstrates that ECF support can provide the catalyst for experienced investors to create new fund management teams to invest in the equity gap,” he said.