21st Apr 2020

The Future Fund – who does it help?

Formally announced in the last 36 hours the Future Fund, plus extra support through Innovate UK, is the Treasury’s answer to the accusation that Coronavirus Business Interruption Loan Scheme (CBILS) only supports ‘sustainable’, profitable businesses, and ignores startup and innovative businesses that haven’t yet achieved enough traction to show profit. 

The fund will be available from May with further guidance to follow.  There are still many questions but let’s look at what we know today…

Matched funding

You must have raised at least £250k in equity investment in the previous five years.  That kills off the hope for many (not all) start-ups, so let’s assume that for most it means scale-up.  Basically, you must already have a proven enough idea to have already generated real interest in investment.  This may be a good thing; it may not be.

The Future Fund will then (subject to eligibility, details not yet published, let’s assume for now it closely matches with eligibility for EIS investment) match a further funding round pound for pound of between £125k and £5m.  This will be in the form of a convertible loan, at 8% interest and carrying a 20% discount on conversion; conversion which happens automatically on the next qualifying round or at the end of the loan term “if the loan is not repaid.” There are rumors that conversion will be mandatory bar a few exceptional circumstances.  Basically, the taxpayer becomes a shareholder on preferential terms. 

Does this encourage investment?

Whilst this of course is potentially very helpful for the right businesses at the right time, it doesn’t necessarily encourage third party investment, or at least that of an angel variety.  As Mark Brownridge of EISA points out, the conditions favoring the convertible loan “will be of very little encouragement for private investors to invest alongside”, particularly at a time when all investors will, as Jeff Lynn from Seedrs points out, be “keeping their powder dry”. 

What is the real way forward?

All help is potentially good help, but it remains to be seen how much this step actually contributes. We endorse the Enterprise Investment Scheme Association’s (EISA) view that the real way forward, at least for private (angel) investment, is to improve the tax advantages of investment. Even if only for a limited period.

A headline term sheet can be found here.

We look forward to seeing the full eligibility criteria and further details on the scheme.