Start-ups across the country are clamoring for more financial support after their competitors in France and Germany had access to funds of € 4 billion ($ 4.4 billion) and € 2 billion respectively.
Many young tech companies say they have been unable to access emergency funds reserved for small businesses as a criteria for requesting business closings without a history of consistent profits. It’s normal for tech companies backed by venture capitalists to prioritize growth over profitability, with a plan to make money later.
The bailout, unveiled on Monday by UK Finance Minister Rishi Sunak, is made up of two initiatives. The first is a £ 500m Future Fund loan program for high-growth start-ups, aimed primarily at national start-ups.
Under the program, which is scheduled to run from May to September, the government will commit £ 250 million, while the private sector is expected to make up the other half. The Treasury has said it will keep the size of the fund under review.
UK unlisted start-ups will be eligible for £ 125,000-5 million in loans, with private investors commensurate with public funding. To be eligible for a Future Fund loan, start-ups must have raised at least £ 250,000 from investors in the past five years.
The loans will be automatically converted into equity during the next financing cycle of a start-up if the debt has not been repaid. A number of prominent figures in the British tech industry have been pushing for this co-investment model.
“Our start-ups and companies that drive research and development are one of our great economic strengths and will help lift our growth out of the coronavirus crisis,” said Sunak.
“This new, world-class new fund will allow them to access the capital they need during these tough times, ensuring dynamic and fast-growing businesses across all industries can continue to generate new ideas and spread prosperity.” “
The remaining 750 million is intended for small and medium-sized enterprises focused on research and development. It will be issued in the form of loans and grants by the UK innovation agency Innovate UK. The first payments are expected to be made in mid-May.
Dom Hallas, executive director of the Coalition for a Digital Economy, a technology lobby group, said the package “would help innovators at an early stage to survive the crisis and prosper afterwards.”
Unveiling of emergency funding deal comes after CEOs of some of Britain’s biggest tech companies – including the billion dollar “unicorns” Deliveroo, Darktrace and Improbable – wrote to Sunak urging the government extend its relief measures against coronaviruses to start-ups.
Talks for another package supporting later stage tech start-ups are underway.
Not everyone in the British tech community is convinced that start-ups should be bailed out by the government. LocalGlobe co-founder Robin Klein recently said that such a fund “could divert needed capital to the wrong part of the economy.”
Meanwhile, industry campaign groups across the EU are urging European Commission President Ursula von der Leyen to ensure that start-ups receive support during the crisis.