What does the new tech start-up fund offer?

by Alexander Beard Group, on Jul 7, 2020 3:18:50 PM

At the end of April, the government unveiled the Future Fund. This landmark scheme will issue convertible loans to normally quick growing tech startups that are suffering due to the COVID-19 crisis. The government sees the UK’s fastest growing and innovative companies as a key part of the recovery process.

The government will make an initial £250 million available as part of a project delivered in partnership with the British Business Bank. The loan scheme forms part of the £1.25 billion pledged investment for innovative new companies.

The scheme comes after calls from large UK tech startups that have claimed they have been left out by the government’s measures to support the rest of the economy. Twelve high profile British tech startups – including Deliveroo and Blockchain – had issued an open letter to the Chancellor, urging for a lending scheme for fast growing tech startups.

As the Future Fund will offer convertible loans, this will mean that the government will retain the right to convert the loan into shares in the company. In the event of a conversion, the government will require the startup to offer “the most senior class of shares in the company.” If a company requires a further round of funding within six months of the loan being converted into shares, the government will then claim an ownership stake in the company.

The Future Fund guidance outlines that these convertible loans are targeted at “businesses that rely on equity investment and are unable to access the Coronavirus Business Interruption Loan Scheme.”

Only unlisted UK registered companies that have raised over £250,000 in the last five years are eligible. These companies must have a “sustained presence in the UK.” This isn’t all – eligible companies must acquire private investment to match the government funding, immediately excluding startups who haven’t yet attracted major private investments.

On the whole, the scheme has been well received by tech startups. The major concern has been with the scheme’s complexity which will compromise its speed of delivery. The world of tech startups is one of rapid growth and quick failure. A delay in delivery could mean that startups fail before they receive their Future Fund loan.

Topics:BusinessUKCoronavirus