Some of Britain’s most successful startups are being locked out of the government’s coronavirus Future Fund and are calling on the Treasury to change the terms.
More than 30 founders of Britain’s brightest startups have written to the Treasury asking them to modify the terms of the loan scheme. They want startups without a UK parent company, but whose majority of employees are based here, to be eligible.
Firms that have taken part in US accelerator programmes – such as Y Combinator or Techstars – will not be eligible for government support under the Future Fund’s current terms.
It is already a trying time for British startups, as market uncertainty has paused investment and VCs have turned to support portfolio companies.
The hope is that the government’s Future Fund will kickstart investors into funding businesses. To be eligible for the convertible loans, firms must have raised at least £250,000 in the last five years.
The loan must be at least matched by private investors and will automatically convert into an equity stake in the majority of cases.
A requirement of these programmes is that the startup creates a US parent company. It has usually not been an issue, with companies using a UK subsidiary to support employees.
However, the Future Fund’s terms state a company must have a UK parent company to be eligible for government support.
These startups have returned to the UK from the US, having secured funding and expertise in their fields, but are now excluded from both governments’ support packages.
Kieran O’Neill, a signatory and chief executive of men’s styling service Thread, told City A.M. the UK risks “missing out on the best of the best”.
Startups could look abroad
Without access to the Future Fund, some startups will be forced to make significant redundancies, including key engineers and scientists.
Signatories of the letter say this will “likely cede market leadership and first-mover advantage to overseas competitors. Some may sell prematurely to those competitors”.
O’Neill said if Thread cannot access the fund the firm will have to revise down its growth plans significantly.
“We may have to make redundancies and the growth path we were on before won’t be the same,” he told City A.M. The fashion startup has already had to furlough some of its staff in operations due to low volumes.
Ignacio Willatts, another signatory of the letter, said his firm Cytera CellWorks would have to close its bridge round of funding if it cannot access the support.
The Treasury ‘wants to move forward’
However, the startups seem confident that the Treasury will listen to their demands. O’Neill told City A.M. that it recognised the issue and “genuinely weren’t aware of this situation”.
“When I shared the issue with the Treasury they were surprised and concerned by the issue,” he added.
Willatts echoed this praise: “I’ve been pleasantly surprised by the openness of the Treasury. There will be challenges with the technical aspect of it but they want to move forward quickly”