PHD Equity Partners is to begin investing from its second fund in January after reaching a first closing of £16.5m.
The firm, which was founded in 2008 as the fund management arm of the Dow Schofield Watts, has raised £16.5m towards its target of £25m for the fund.
It is backed by a group of high net worth individuals alongside the PHD partners who will be investing more than £2m.
The fund will build on its strategy of investing in established smaller UK businesses with the capacity to scale up. The investee companies will typically have valuations of less than £10m.
James Dow, managing partner of PHD, said: "We are delighted with the support we have received from investors which we see as recognition of the high quality of our team, the value created within our existing portfolio companies and the strong performance of our past investments.
"Having now completed our final investment from Fund 1 we are excited about finding new businesses for Fund 2 to help "scale up" in 2015. Our successful fund-raising for Fund 2 is a hugely significant step forward in our ambitions to create a truly unique proposition for investors and investee companies."
Daresbury-headquartered PHD expects the fund, which was launched in October, to reach its target size by its final close in March.