Small talk: Growth fund creates happy mediums

That Britain is not an entrepreneurial nation has become a received wisdom – the theme underlies much of the current drive to encourage more people to start their own businesses, as policymakers look to small and medium-sized enterprises (SMEs) to drive the recovery. But the truth is that Britons are pretty good at starting businesses – last year around 460,000 people did so, around the same number as in Germany per capita.

What we're less good at is turning start-ups into real engines of growth. But you wouldn't guess that was the problem from the focus of most SME policy initiatives on the first letter of the acronym. Start-ups grab the lion's share of help (and a disproportionate amount of media attention too).

That's to the detriment of medium-sized businesses – unfortunate given these companies already have track records of success and could become much larger employers, with a bit more support. The Business Growth Fund, set up last year to invest in such enterprises – one of the few policy initiatives in this sector – reckons there are 25,000 of them. A fifth are growing at 10 per cent a year or more.

What is stopping these medium-sized firms becoming large enterprises? It's not the credit crisis – or not only that. Just as big a problem has been the disappearance of the development capital industry over the past two decades. There was a time when all our large banks, as well as many independents, regularly took capital in businesses identified as the stars of tomorrow. But that model was superseded by the private equity phenomenon, as leveraged buyouts appeared to offer superior returns to straightforward equity stakes.

When the supply of credit was bountiful, the demise of development capital was masked. But in a post credit-crisis world, those 25,000 businesses have discovered there is no-one else to turn to for capital.

It is good news, therefore, that after a relatively slow start – it has been running for a year – the growth fund is stepping up the pace. Last week, it announced its eighth investment, a £3.85m injection of capital into Glasgow-based manufacturer M Squared Lasers. It's a typical example of the fund's mandate to invest between £2m and £10m in companies in return for a stake of at least 10 per cent, but never a controlling interest.

The aim is to turn the fund into the sort of organisation that 3i once was. And with £2.5bn of capital commitments from the banks – assuming they make good on them – it stands a chance. Executives at the fund reckon it could make 25 investments a year once it really gets going – not bad given that just 40 companies in its target universe have managed to attract any development capital from the private sector over the past year.

These companies are the British equivalent of Germany's Mittelstand firms, the SMEs credited with having carried that country's economy over the past 50 years. A rebalancing of Britain's SME policy towards this type of enterprise is overdue.

Orogen sees future in old Serbian sites

If you're looking for gold, it makes sense to start where others have already found it. Alternative Investment Market-listed Orogen Gold, has just published the results of sampling work suggesting there is still high-grade gold in two Serbian mines in which it owns a share. The mines haven't been touched since 1938.

Orogen has spent a year mapping the mines' historic development and evaluating whether they have fresh commercial potential. Today's results suggest there's a good chance of a positive outcome, though the company warns more work needs to be done.

House broker Xcap is bullish. Analyst Sam Brindle says: "With a packed summer exploration season these are exciting times for Orogen."

More deals 'in pipeline' for Waterlogic

Waterlogic, the drinking water dispenser company featured in Small Talk in February, is on the move. Having made its debut on the Alternative Investment Market last year, Waterlogic has just published its maiden results – earnings were up 17 per cent to $13.4m (£8.3m). Indeed, the company beat brokers' forecasts on every metric.

Liberum, the company's house broker, tips it to announce "a string of contract wins" in the coming months, with deals in the pipeline in both the consumer and business market. Talks over a joint venture with a water treatment company are also advanced and Waterlogic is particularly excited about its Firewall ultra-violet technology. This kills off just about every virus or bacteria you're likely to find – handy since Waterlogic's equipment plugs into your supply rather than relying on bottles that constantly need to be replaced.

Currently trading at 185.5p (against 172p when Small Talk last featured the company), Waterlogic shares have plenty of upside, Liberum argues. It has just raised its target price for the stock from to 221p to 233p.

Consultants hail switch overseas

David Richards, chief executive, SLR

When we set up our company, the UK market for our business, environmental consultancy, was booming and we grew quickly. Then, in 2008, we realised the UK was going to be increasingly difficult, particularly with the construction industry at a standstill, and we began looking beyond the UK for high-growth markets. We made acquisitions in Australia, North America and South Africa.

In three years, we've gone from making 70 per cent of sales in the UK to 70 per cent overseas, by targeting economies driven by the resources boom. We provide services such as helping companies through the process of gaining permissions to mine or drill, and assessing projects' environmental impact. It seems to have worked – sales were up 24 per cent last year and our earnings were a record for the company.