Startups that have been impacted by the coronavirus outbreak will now be able to apply for emergency support under the government’s £500m Future Fund scheme.
The fund, which opened for applications today, will offer UK-based startups convertible loans of between £125,000 and £5m to support continued growth and innovation across a range of sectors.
The government has made an initial £250m available for investment through the scheme and will consider increasing this if needed.
To be eligible for the loans, companies 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.
“Our startups and innovative firms are one of our great economic strengths, and they will help spur our recovery from the pandemic,” said chancellor Rishi Sunak.
“The Future Fund will support firms across the UK to get through the pandemic by stimulating investment, so that they can continue to break new ground in technology and innovation.”
While the fund — part of a wider £1.25bn support package for startups — was initially welcomed by the sector, it has come under fire amid concerns the terms of the loans are locking out some firms.
More than 30 British startups have penned a letter to the Treasury calling for firms that do not have a UK parent company but have the majority of their employees working in Britain to be made eligible.
Under the current terms, startups that have taken part in US accelerator programmes such as Y Combinator or Techstars will not be able to access the Future Fund.
Meanwhile one of the UK’s leading tech entrepreneurs has described the scheme as “simply not good enough”.
Priya Lakhani, founder and chief executive of education technology company Century, told City A.M.’s City View podcast the terms of the Future Fund were so bad that “our lawyers would tell us not to accept.”
The government has not addressed these concerns, but said it will amend the rules of the Enterprise Investment Scheme, which provides tax relief to investors in high growth firms.
This will ensure Future Fund investors do not lose relief on their previous investments made prior to any investment through the Future Fund.
The scheme, which will be delivered with the British Business Bank, will be open for applications until September.
“The UK is a global tech and creative hub and we are committed to supporting high-growth businesses through this challenging period so they can prosper and succeed,” said Oliver Dowden, secretary of state for Digital, Culture, Media and Sport.
“The tech sector has played a crucial role throughout the pandemic and these innovative firms will be key to driving growth through our recovery.”