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Government announces £1.25bn package for startups!

Welcome to our latest Policy Update. In these updates, The Entrepreneurs Network focuses on recent policy development and sets out (nearly) everything an entrepreneur needs to know about the topic. If you’re joining us for the first time, you can read our past updates here.  If you were forward this update, you can sign up here. 

In recent weeks, we have argued that there’s a gap in the government’s economic response to coronavirus. High-growth startups, which are typically loss-making (or even pre-revenue) have been shut out from the government’s Coronavirus Business Interruption Loan Scheme (CBILS), as the scheme requires banks to lend on normal commercial terms. In response, we joined up with other entrepreneurship groups to launch the Save Our Startups campaign and call for an equity-based solution for high-growth small businesses. Many of you reading this will have been among the thousands who signed the campaign.

We are pleased to announce that our calls have been listened to by HM Treasury, who have today announced a new £1.25bn package to support startups through the coronavirus crisis.

The support comes in two key forms. A new £500m public-private partnership convertible loan fund (close to what was advocated by the S.O.S campaign) and £750m (including £200m of fast-tracked funding) of grants and loans for research and development through Innovate UK.
The Future Fund

The government’s Future Fund will issue convertible loans of between £125k and £5m to startups seeking bridge funding for working capital purposes. The funding must be matched by private investors and the government will provide no more than 50% of the funding. 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.

For example, if you took out a £1m convertible loan from the Future Fund, then the government will take £1.25m worth of shares in your company at the next fundraising round where you raise more than £1m.

To qualify for matched funding, you must be an unlisted UK registered company that has raised at least £250,000 in aggregate from private third-party investors within the last five years. If your company is part of a corporate group, then only the parent company, if a UK registered company, is eligible to receive the loan. 

The government will also place controls on what you can use the additional funding for. It must not be used by your company to repay any borrowings, make any dividends or bonus payments to staff, management, or shareholders.

The scheme will launch in May and will remain open till September. You can find out the full details here.

Grants and loans for R&D

The government is also providing £750m in additional support for research and development through Innovate UK.

If you already receive funding from Innovate UK and are waiting on grant and loan payments, you will be able to opt-in to receive accelerated payments. We called for this in the Save Our Startups campaign and it will provide an additional £200m in liquidity to startups. 

An extra £550m will also be made available to increase support for existing Innovate UK customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding. However, the government is yet to publish the full details of this support. Once they do, we will let you know in a future policy update.

We will monitor both of these schemes to make sure they’re helping as many startups as possible. Keep a lookout in future updates for more information as to how the schemes are actually working on the ground.

Sam Dumitriu
Research Director
The Entrepreneurs Network
Copyright © 2020 The Entrepreneurs Network, All rights reserved.


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Copyright © 2020 The Entrepreneurs Network, All rights reserved.