The British Business Bank has committed £40m to the fourth fund of FPE, a private equity firm focused on B2B software businesses, as the state-owned lender continues to deploy capital under an expanded government mandate targeting the lower end of the private equity market.

FPE, which was founded in 2016, invests in companies across the UK and Ireland with enterprise values typically falling between £10m and £75m. The firm focuses on businesses in the B2B software space, a segment that has attracted growing institutional interest as recurring-revenue models have become more prevalent across the technology sector.

The British Business Bank's involvement with FPE is not new. The bank committed £20m to FPE's Fund II in 2017, making the latest pledge a continuation of a relationship that now spans nearly a decade. The scale of the commitment has doubled, reflecting both the growth of FPE's fund series and the bank's broadened investment remit.

That remit was formally expanded under what the bank describes as its growth equity strategy, which gives it the authority to invest in lower-mid-market private equity funds targeting small businesses in sectors consistent with the government's Industrial Strategy. Digital and technology companies, alongside professional and business services firms, are among the priority areas the bank has identified under this framework.

Adam Kelly, managing director and co-head of funds at the British Business Bank, said there was a meaningful gap in available capital for businesses at the stage FPE typically targets. He stated, "There is a significant funding gap in the lower-mid-market, particularly for those smaller businesses that have outgrown early-stage funding," and that FPE's strategy provided businesses at a crucial stage of development with a flexible answer.

The funding gap Kelly referred to is a recurring concern in UK technology investment circles. Businesses that have moved beyond seed and Series A rounds often find that larger institutional funds have minimum cheque sizes that price them out, while venture capital firms have moved on to earlier-stage opportunities. That leaves a segment of the market, profitable or near-profitable software businesses with genuine growth potential, with relatively few natural backers. FPE's model is designed to sit in that space.

Richard Coldwell, investment director of funds at the British Business Bank, said the commitment was intended to ensure that growth capital reached companies entering their next stage of development. He pointed to job creation and economic growth as outcomes the bank expected to follow from FPE's deployment of the fund across its target sectors.

The broader context for the British Business Bank's push into growth equity is the government's industrial policy agenda, which has placed increased emphasis on domestic capital formation and the role of patient, long-term investment in building competitive technology businesses. The bank's expanded mandate reflects a view within government that public institutions have a role in addressing market failures where private capital alone is insufficient.

FPE's Fund IV will invest across the UK and Ireland, maintaining the geographic scope of the firm's previous vehicles. The £40m from the British Business Bank represents one element of what is likely to be a larger fund, though the total target size has not been disclosed publicly.

For FPE, securing the British Business Bank as a returning investor provides an anchor from which to build out the rest of the fund's capital base. Institutional limited partners often view participation by development finance institutions and government-backed investors as a signal of credibility, particularly for fund managers in the mid-market where track record and consistency matter to prospective investors.

The commitment was announced on Thursday.