Government expands Future Fund eligibility requirements

The Future Fund will now be accessible to startups which enjoy previously taken phase in accelerator programmes, but early-stage companies proceed to war

Sebastian Klovig Skelton

Sebastian Klovig Skelton ,
Reporter

Printed: 30 Jun 2020 14: 30

Changes to the authorities’s Future Fund eligibility requirements suggest startups and loss-making companies that participated in accelerators will be now able to enjoy a look at for investment in the course of the draw.

The £250m Future Fund, which used to be announced 20 April and launched in Would possibly well well additionally just, presents loans to UK-primarily based companies ranging from £125,000 to £5m, field to at least equal match funding from non-public investors.

Funding in the course of the draw is accessible within the produce of a convertible mortgage existing, giving the UK authorities equity shares within the endeavor when the funding converts.

Sooner than the changes had been launched, enterprises had to be an unlisted UK registered firm and revel in raised at least £250,000 in equity investment from non-public, third-celebration investors within the previous 5 years to be eligible for the loans.

Now, UK companies which enjoy participated in accelerator programmes and had been required, as phase of that programme, to enjoy mother or father companies commence air of the UK will be capable of enjoy a look at for investment.

However, companies will mute be required to meet the ‘substantive economic presence’ tests, whereby half or extra workers are UK-primarily based and/or half or extra revenues are from UK sales.

“Our decision to relax this rule recognises the importance of most of the UK’s most reducing-edge startups as we soar attend from coronavirus,” said enterprise secretary Alok Sharma.

“Accelerator programmes, a lot like TechStars or Y-Combinator, give companies entry to finance, mentorship and knowledgeable networks. Contributors in accelerator programmes are in most cases required to field up a non-UK mother or father firm to participate, which system some didn’t meet the Future Fund requirements of having a UK mother or father firm when it opened for purposes in Would possibly well well additionally just.”

He added that extra funding has been made accessible attributable to the recognition of the Future Fund, and that the “scale of the draw will be saved below review”.

HM Treasury claims that, to this level, extra than 320 early-stage, excessive-boost companies must this level benefited from £320.6m of reinforce in the course of the fund.

“The recognition of the authorities’s Future Fund in ideal its first month of operation presentations that the UK’s quickest-rising startups mute require ongoing monetary reinforce to dwell on the upcoming months,” said Ritam Gandhi, founder and director of London-primarily based digital agency Studio Graphene.

“It’s promising to test up on steps being taken to develop the pool of early-stage companies eligible for reinforce, as effectively as will increase to the funding on supply.

“Yet I mute think regarding the Future Fund fails to hit the ticket. Many companies who enjoy been severely stricken by the pandemic enjoy been left without recourse, either because being unable to quality for assorted authorities-backed schemes… or attributable to difficulties securing a mortgage from excessive road banks.

“The Future Fund, in theory, used to be launched as an replacement to these schemes and aimed to bound these forms of gaps. However, it continues to preclude struggling companies from having access to the assist they need.”

Startups out within the wintry

In April, Computer Weekly revealed 83% of the UK’s roughly 30,000 startups had been ineligible for Future Fund loans as, in response to figures from Dealroom.co, which customarily prepares files on the UK tech sector for the authorities’s Digital Economy Council, ideal 5,000 startups enjoy raised £250,000 or extra within the previous 5 years.

Whereas the authorities individually pledged £750mn of centered reinforce for essentially the most overview and construction (R&D) intensive little and medium-sized enterprises (SMEs), which is offered through Innovate UK’s grants and mortgage draw, it has additionally ideal reached a little number of companies.

“Innovate UK, the national innovation agency, will tempo up as a lot as £200m of grant and mortgage funds for its 2,500 existing Innovate UK customers on an select-in foundation,” said HM Treasury when asserting the pledge.

HM Treasury used to be unable to dispute what number of extra startups would be eligible below the expanded requirements when asked by Computer Weekly.

early-stage companies in direct enjoy struggled, with enterprise overview showing ideal £52mn of over £1bn in investment, or 5%, has long previous to these companies between the originate up of lockdown on 23 March and 21 Would possibly well well additionally just.

Changes to the Future Fund since its preliminary announcement enjoy additionally exiguous how significant money early-stage startups can entry.

As an example, companies which enjoy previously raised investment in the course of the Endeavor Funding Scheme (EIS) or the Seed Endeavor Funding Scheme (SEIS), which present tax advantages to particular person startup investors, will be ineligible – despite many early-stage companies counting on these schemes to safe funding from investors.

“Crucially, while designed to enhance the country’s startups, the funding is no longer compliant with the Endeavor Funding Scheme, otherwise is called EIS. The shortcoming of tax reduction system that VCs, as a replacement of investors, are better positioned to co-invest in early-stage companies,” added Gandhi.

“The Future Fund thus takes the produce of a VC offering which freezes out non-public investors and, by extent, the bulk of entrepreneurs within the early phases of constructing a enterprise.

“The authorities must rethink its system and develop positive that that that reinforce schemes are designed to assist all innovative startups to dwell on this demanding duration – no longer right folks that already enjoy a excessive valuation.

“Because the economy step by step re-opens, we can no longer possibility alienating the UK’s most promising entrepreneurs and forcing them to re-enter the economy with out a ample restoration opinion.”

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