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Just under a fifth of startups are eligible to receive loans through the government’s Future Fund, despite it being specifically designed to help startups and loss-making companies survive the Covd-19 coronavirus pandemic.
The £250m Future Fund, which was announced 20 April and due to launch in May, will provide loans to UK-based companies ranging from £125,000 to £5m, subject to at least equal match funding from private investors.
However, to be eligible for loans under the scheme, enterprises must be an unlisted UK registered company and have raised at least £250,000 in equity investment from private, third-party investors in the past five years, according to the fund’s headline terms.
According to Dealroom.co, which regularly prepares data on the UK tech sector for the likes of entrepreneurial network Tech Nation and the government’s Digital Economy Council, there are approximately 5,000 startups that have raised £250,000 or more in the past five years.
In total, the UK has roughly 30,000 startups, meaning some 83% of these enterprises will not be eligible for Future Fund loans.
While the government is separately pledging £750mn of targeted support for the most research and development (R&D) intensive small and medium-size firms, which will be available through Innovate UK’s grants and loan scheme, it will only reach a small number of firms.
“Innovate UK, the national innovation agency, will accelerate up to £200m of grant and loan payments for its 2,500 existing Innovate UK customers on an opt-in basis,” said HM Treasury.
“An extra £550m 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. The first payments will be made by mid-May.”
Accounting for both R&D support and matched funding from the private sector, the new package totals £1.25bn.
HM Treasury was approached for comment but did not respond.
According to Daniel Korski, CEO of Public, an organisation set up to bridge the gap between startups and the public sector, players across the ecosystem worked hard to secure support for startups, which included The Coalition for a Digital Economy (Coadec), Capital Enterprise, and Founders Factory.
“We believe that we have secured the best deal possible in the circumstances. Not everyone will be able to benefit from this package, but many will have access to a lifeline where they would not have before – one which we hope will ensure that a fast-growing segment of the ecosystem weathers the storm,” he said.
Russ Shaw, the founder of Tech London Advocates and Global Tech Advocates, added that the entire economy is grappling with “unprecedented turmoil”, with tech startups being no different.
“The new co-investment mechanism in the Future Fund is open to firms that have secured a minimum of £250,000 in cash to date – unfortunately, that is not a reality for a great number of startups that hold real potential but are at the very early stage,” he said, adding the government’s next steps must focus on speed and responsiveness to keep the lights on for UK companies.
“To date, I would praise officials for their engagement with the tech sector, with a range of ministers in daily contact with industry leaders. And that will be more critical than ever as we learn whether the British Business Bank can deploy the funding fast enough and that we adapt and revise to fill the gaps that emerge – ensuring that capital, loans and grants are available for all viable businesses at varying stages,” he said.
Other tech industry bodies were also approached for comment by Computer Weekly. Tech Nation declined to comment, while Coadec did not respond by the time of publication.
In a separate report released on 22 April by EuropeanStartups.co, a joint project by Dealroom.co and Sifted.eu which is supported by the EU Commission, it is estimated a third of European startups are ‘vulnerable’ because of the pandemic.
The report added that Europe’s startup ecosystem is particularly fragile as many companies are still at a very early stage.
“It is vital to remember that even in a normal business environment, more startups will fail than succeed. While listed tech companies have seen their values fall, sometimes by as much as 30 to 40%, startup values are likely to see slightly lower reductions in value,” it said.
“The high mortality rate of startups means it is vital to make sure that any government support for the sector is targeted at those companies that would, in usual circumstances, have a strong chance of succeeding.”
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