Government’s Future Fund approves just £55.9m of convertible loans to date
The government’s Future Fund scheme has approved £55.9m of convertible loans despite receiving applications worth £515m on the first day of launching.
The fund was set up as an alternative to the Coronavirus Business Interruption Loans Scheme (CBILS) for startups unable to demonstrate a turnover. It was designed to support startups through the coronavirus crisis through government loans ranging from £125,000 to £5m, subject to matched funding from investors.
The British Business Bank (BBB) today said the first 53 companies have been approved for the convertible loans, with 533 applications since it opened for applications on 20 May. The £55.9m of convertible loans has been matched by at least the same amount from third party investors.
The bank said the application process is expected to take a minimum of 21 days from initial application to funding being awarded.
Keith Morgan, chief executive of the British Business Bank said: “Since the Chancellor announced the Future Fund on 20 April, the British Business Bank has delivered an open access online transaction process to issue convertible loan notes.”
“This rapid build has enabled businesses to gain access to finance through the scheme quickly and efficiently.”
However, the fund has been mired with issues as entrepreneurs and investors warned it risked freezing out a swathe of firms.
Too little, too late?
The Future Fund was initially announced by the Chancellor on 20 April, and was open for applications a month later. It means that a number of startups struggling in the current climate have gone nearly two months without government support.
There had also been concerns that the initial £250m would go too quickly. Tim Fouracre, founder and chief executive of banking app Countingup, told City PM that it was likely to go very quickly given it’s a similar size to a seed VC fund.
Indeed, the fund proved extremely popular on launch with applications worth £515m, showing the extent of the help needed for startups.
This sentiment was echoed by Chris Smith, managing partner of Playfair Capital, who said the early-stage fund’s preferred route was to continue closing priced equity rounds.
“This is primarily because we don’t want to rely on the Future Fund as it’s really a very small amount based on a first come, first served basis not the strength of a business plan.”
However Rishi Sunak has insisted the Treasury will increase the available funds if necessary.
Future Fund Version 2
Since the Future Fund has a convertible loan note structure, it means it is not compliant with the Enterprise Investment Scheme (EIS). EIS is a form of tax relief that encourages investors to push money into early-stage businesses.
Without the tax relief, investors are unlikely to put money in alongside the government and it means big VCs are better-placed to co-invest.
Yesterday, British businesses called on the government to incentivise these angel investors to invest in SMEs by introducing a temporary tax relief scheme.
Buckworths, a law firm which works exclusively with startups, wrote to the Treasury to ask for a high upfront rate of income tax relief for the scheme.
Additionally, some investors and entrepreneurs have called for a second Future Fund to support startups.
Anthony Rose, founder and chief executive of SeedLegals, an automated legal service platform for startups, told City PM, “I’d love to see the government come up with another scheme – either direct investment or perhaps SEIS/EIS incentives. It is the most scalable approach.”