The UK Government has announced £1.25 billion in funding for early-stage companies.
Targeted at early-stage businesses with existing funding and R&D-focused start-ups, the two-pronged support package will consist of a £500 million co-investment fund, dubbed the ‘Future Fund’, and £750 million being made available in grants and loans for small and medium-sized enterprises (SMEs) focused on research and development.
The £500 million ‘Future Fund’
This £500 million co-investment fund (£250 million of which will be provided by the Government, the other half of the fund coming from the private sector) will make available convertible loans of between £125,000 and £5 million to qualifying companies.
These convertible loans will be provided in partnership with the British Business Bank and would convert into equity (at an expected minimum discount of 20%) at the company’s next funding round or on certain other events. The loans are expected to bear interest at a minimum rate of 8% per annum and have a maximum 36 months’ term. The expected headline terms for the convertible loans can be found here, although these may evolve according to the features of each funding request.
Cash from the ‘Future Fund’ is available only to unlisted UK-registered companies that have raised at least £250,000 in equity investment in the last five years and any funding provided must be matched by third party investors. It is intended to be accessible from May 2020 and will initially run until the end of September 2020.
£750 million for R&D SMEs
Innovate UK, the national innovation agency, will provide SMEs with up to £750 million in grants and loans. Targeted at R&D-focused SMEs, Innovate UK will accelerate up to £200 million of grant and loan payments for its existing customers (if they opt-in). The balance will be made available to increase support for existing customers and around 1,200 firms who do not currently receive funding from the agency stand to benefit from up to £175,000 of additional support each. Innovate UK plans to start making payments from mid-May.
Further detail on eligibility and implementation is to follow, but the unprecedented support has already been welcomed by many from the start-up community. Some commentators have, however, cautioned that the ‘Future Fund’ scheme should not be a ‘blank cheque’ and the focus of support should be weighted towards later stage businesses with a proven track record; however, the design of the scheme appears to acknowledge this with the requirements for businesses to have raised existing funding and for private investors to match the Government’s funding.