Enterprise boards prove that small can be profitable: Agencies that were set up mainly to create jobs have thrived as venture capital operations, writes Paul Gosling

ENTERPRISE boards, the venture capitalists established in the early 1980s by Labour local authorities, have proved surprisingly successful in their mission to aid small firms that would otherwise find it impossible to raise funds.

Lancashire Enterprises has done so well since its privatisation four years ago that it is launching a national subsidiary, UK Economic Development Partnership, to set up regional development funds based on the Lancashire model.

When the board was created by Lancashire County Council 12 years ago, its objectives were mainly social - creating work for local people. This emphasis has been retained and the council still has a 20 per cent shareholding, but the company is now also unashamedly chasing profit.

In six years, turnover has increased from pounds 6m to pounds 15m, and this year the company expects to make pounds 3m profit, up from less than pounds 1m when it was privatised.

Initially, the company depended on the council for its work, but now 70 per cent of contracts are with other customers, including the European Bank for Reconstruction and Development, which it is advising on management of an investment fund in Russia.

The company runs a business school in Poland, is advising the Albanian government on a framework for the development of small businesses, and provides training courses in Kazakhstan.

Lancashire Enterprises has proved that venture capital funds for smaller businesses can be profitable and now attracts pension and insurance companies as investors. Loans range from pounds 5,000 to pounds 500,000 - still small beer for big venture capital funds such as 3i.

The West Midlands Enterprise Board was running a deficit when privatised in 1986. It had focused on re-establishing a manufacturing and production base in the region and running training schemes and a clothing centre, as well as the venture capital fund. 'It had lived off its assets, stocking up its losses,' said Ian Pearson, joint chief executive of the board. 'In 1991 it started to change.'

This process involved making a third of staff redundant and concentrating on core activities, transferring responsibility for training and the clothing centre to district councils.

Returns from WMEB's venture capital funds are improving, and a profit of pounds 300,000 is expected this year. The board's average loan is pounds 380,000, and borrowers must accept a board nominee as non- executive director. The board sells consultancy services to much of the public sector.

Greater London Enterprise has slimmed down dramatically since the abolition of its parent, the Greater London Council. Staff have been cut from 60 in 1986 to just 15 today.

'In my view it is now delivering more in economic development objectives than the old organisation ever did,' said its chief executive, David Walburn. 'We have turned the organisation round significantly and it has not been smooth. A lot of activities didn't add to profit but were sustained by the property boom. There has been a change of focus since the days of the GLC. The investments weren't made with the objective of securing a proper return, but to maintain jobs and retain certain types of activity in London. What was here in 1986 wasn't viable without continued public finance.'

GLE has made a profit of pounds 661,000 in the first nine months of this year, and its managed funds attract investments from 17 local authority pension funds. Loans up to pounds 500,000 are available to businesses in London.

GLE operates small business services for Barclays and Midland banks, and BP.

When created, the enterprise boards had visions of becoming the regional arms of a future Labour government, implementing a strategic plan for the economy. Ambition and staff size have shrunk since then.