On Monday the government announced the Future Fund, which will provide convertible loans to UK-based companies ranging from £125,000 to £5 million, subject to at least equal match funding from private investors. The loans will convert to equity at the next fundraising round at a 20% discount, or a higher rate if the private investor demands it.
An equity solution was a key ask of the Save Our Startups campaign, and while there are legitimate quibbles about the details – some of which will be worked out when the terms are updated – the alternative might have been no support at all.
Many startups won’t qualify, which is why the requirement to have raised £250k should be lowered to £100k. As Beauhurst has calculated: “That’s still a substantial enough hurdle for due diligence purposes whilst allowing another 2,302 of the most promising seed stage companies to participate.”
The Future Fund will launch in May. You can find the provisional headline terms here, Form Ventures has a useful explainer here, and on 30th April Digital Catapult has a webinar on how to access it which you can sign up for here.
Another Save Our Startups ask was the fast-tracking of payments to startups from public funding schemes. To this end, it was also announced that Innovate UK will accelerate £200 million of grant and loan payments for 2,500 existing Innovate UK partners on an opt-in basis, with an extra £550m available to increase the support on offer for these existing partners, and a further £175,000 for around 1,200 firms not currently in receipt of Innovate UK funding.
Sign up to our Policy Updates to get more details of both schemes as soon as they’re announced.
Satisfactory guarantee?
Last week’s rumour was around the imminent Future Fund. This week it’s the more public rumour that the Treasury is considering a 100% guarantee on loans up to £25,000. This is closer to the Swiss model, which we have previously called for. But as James Hurley of The Times cautions in a tweet: “On its own, a 100pc guarantee is not the incentive to lend with lighter checks many think it is. The guarantee is for individual loans, not the whole book. Book cap is 60pc. Also, the guarantee can only be claimed after the bank's own recovery action, not at point of default.”
As the government tries to get to grips with the businesses still falling through the gaps in funding – just take a look at the #forgottenltd hashtag for a flavour of this – they’re going to need to start grappling with a new dimension of complexity. When lockdown restrictions are eased, some industries will be back up and running before others.
We think the government needs to start communicating with businesses about its priorities for easing, and the policy leavers it will use to support those at different stages. Why would a pub owner, for example, take on a loan when it is possible that they will be shut for six months or more?
Of course, clarity on timeframes is impossible at this stage. But more clarity on the latest thinking on processes and priorities would be welcomed by business owners as soon as it’s available.
Environmental goals
Following our successful partnership with the Enterprise Trust on the Unlocking Growth report, we’re pleased to announce that we’re undertaking another report – this time on the way that entrepreneurs and government can support environmental goals.
For the first stage of this project we’re inviting a small group of entrepreneurs and policy experts to become advisers to guide and promote the research. The project will audit what is already being done to support the environmental objectives, to what extent they are effective, and what might be done differently.
Alongside the more technical overview, we will interweave case studies of companies that are innovating in the environmental sector. This would tease out both specific challenges of the sector (e.g. applying for grants, selling into government etc.), as well as general challenges of scaling innovative companies.
If you’re keen to get involved, drop the author Eamonn Ives an email to introduce yourself.
Meet Your Match