Venture-backed start-ups struggling for funds during the pandemic will get a helping hand from the government.
The Treasury has announced a £1 billion bailout package targeted at new and innovative small and medium-size businesses to keep the UK’s tech and life-sciences industries afloat.
Central to it was the new Future Fund, a scheme that will issue convertible loans between £125,000 and £5 million to innovative companies that are facing financing difficulties. It will initially make up to £250 million available in total funding, though this will be kept under review.
The Future Fund, which comes into force in May, is designed to support businesses that rely on equity investment and are not covered by the Coronavirus Business Interruption Loan Scheme announced in March.
By offering matched loans of up to £5 million, the scheme should effectively halve the burden of finding funding during this economically uncertain time.
It is hugely important for the UK to support its innovation sector to ensure it continues to thrive or even, frankly, survive
Eligible startups and businesses will be able to apply for up to £5 million in bridge funding, automatically converting into equity on the company’s next qualifying funding round and repayable at a minimum interest rate of 8 per cent a year.
Separately, the additional sum forms part of a £750 million pledge for targeted support for what it describes as “the most R&D intensive small and medium size firms”. The cash will be made available through Innovate UK’s existing grants and loan scheme.
A treasury spokesman said: “Innovate UK will accelerate up to £200m of grant and loan payments for its 2,500 existing Innovate UK customers on an opt-in basis.
“An extra £550m will also be made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding”.
Charlotte Walker-Osborn, international head of artificial intelligence and technology sector, at global law-firm Eversheds Sutherland said: “In theory, the announcement is a good thing.
“It is hugely important for the UK to support its innovation sector to ensure it continues to thrive or even, frankly, survive during these tough times when the businesses these SMEs contract with will generally be more conservative with their spending on innovation.
“However, the small print is interesting here. Loans will convert to equity if not repaid and whilst that is understandable, there is a real risk for start-ups accessing the fund that this could become a reality, and this must be carefully looked at by them.”
Steven Drew, spokesman for the small business advice portal Informi, said: “Innovative start-up companies are going to be among the major firms of the future and many are already proving their resilience and ability to adapt to changing market conditions during the current coronavirus (Covid-19) pandemic.
“If we think back to the last time the economy was badly hit in 2008, the fintech industry emerged as one of the major success stories ever since and many politicians have been talking up its importance in the light of maintaining the UK’s position as a global leader in a post-Brexit world. Similarly, companies who are being targeted by this new relief fund can be the ones to fuel the economic recovery post Covid-19 as they are best placed for substantial future growth, and therefore creating thousands of new jobs.