The UK government is set to take a stake in hundreds of high-growth British startups after launching a plan to save the sector from the brink of financial collapse.
Following weeks of negotiations with entrepreneurs, investors and trade associations, the Treasury has this morning (20 April) unveiled a £1.25bn package to support tech startups and firms specialising in research and development.
The package is divided into two pots: a £500m loan scheme for startups, called “Future Fund”, investment in which will be divided evenly between the Treasury and private investors, and £750m of “targeted support” for small and medium-sized companies focused on R&D.
The Future Fund loans will automatically convert into equity if they haven’t been paid off by the time of the next funding round, or the end of the loan’s lifetime.
The Chancellor Rishi Sunak said: “Our startups and businesses driving research and development are one of our great economic strengths, and will help power our growth out of the coronavirus crisis
“This new, world-leading fund will mean they can access the capital they need at this difficult time, ensuring dynamic, fast-growing firms across all sectors will be able to continue to create new ideas and spread prosperity.”
To qualify for the Future Fund, startups must be privately owned and have received at least £250,000 of investment in the last five years. They will be eligible to receive between £125,000 and £5m of government funding, which must “at least” be matched by the private sector, the Treasury said.
Meanwhile the R&D support will be issued via InnovateUK. The agency, the Treasury announced this morning, will “accelerate up to £200 million of grant and loan payments for its 2,500 existing Innovate UK customers on an opt-in basis.
“An extra £550 million will also be made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding.” Both schemes will open in May.
The measures have been welcomed by the tech sector. Dom Hallas, executive director of the Coalition for a Digital Economy (Coadec) said: “Britain is the start-up capital of Europe and this package is a signal of intent that the Government will make sure it remains so in the future. This support will help early-stage innovators survive the crisis and thrive after it.”
Russ Shaw, founder of Tech London Advocates, added: “Time is of the essence and although a scheme launched by May is very welcome, there are many early stage businesses that have more immediate needs. To complement the Future Fund, it’s crucial that the government also leans on existing schemes to address this.
“The Chancellor’s provision of £750m in Innovate UK grants is an excellent example of this in practice. More can be done though, such as expediting R&D tax credits or modifying Enterprise Investment Scheme and venture capital trust rules to enable investors to inject cash into startups now. This combination will go further to address the immediacy of the issue.”