July 13, 2024

Tishamarie online

Specialists in technology

Funding the future during the pandemic

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Start-ups can apply for loans up to £5m but must be able to have investment matching the loan

Are you the owner of a fast-growing UK tech firm worried about keeping going during the current health crisis?

Well you had better get your skates on – the Treasury is offering a £250m loan scheme for firms like yours and the money could be gone soon.

When the idea of some kind of government help for the UK tech sector was floated in early April, it did not get a universally warm welcome. A letter from a dozen tech entrepreneurs to the Chancellor may not have helped – it was pointed out that several of them had received huge amounts of backing from overseas venture capital funds and did not appear to need support from the taxpayer.

There were also warnings from some in the venture capital world that it was a bad idea for the government to try to pick winners in an area where many fledgling firms crash and burn even in the good times.

But the Future Fund, launched this morning, appears to have dealt with the concerns of most of the critics. Fast-growing companies can apply for loans of between £125,000 and £5m, as long as they have investors willing to supply matching funds. “We know that there has been a shock to the system, and we’re hoping that we can help build some confidence,” Treasury Minister Kemi Badenoch told me this morning.

I put it to her that many of the early-stage firms in the tech and life sciences sectors were earning little or no revenue before the pandemic – so what had really changed?

“The crisis has affected their ability to access investment,” she said. “And we just want to unlock that investment for high-potential companies that will drive the future economy.”

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Dream Reality Interactive

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Some firms – like gaming start-up Dream Reality – have already applied

One company that has already applied to the fund told me that was exactly its situation – a short-term funding gap. Dave Ranyard’s virtual reality gaming start-up Dream Reality Interactive is in one of the few sectors that is doing well at the moment.

But the company still failed to raise quite as much money as it expected in March, from investors taking advantage of the government’s existing Enterprise Investment Scheme: “The markets were all shaky, people’s net worth dropped because the stock market dropped. And so less of that EIS money was placed.”

Mr Ranyard says other schemes like the Coronavirus Business Interruption Loans (CBILS) have not been suitable for tech firms, so they are giving the Future Fund a go. “It’s one of many things that we’re trying, I think it could work well for us,” he says.

There appears to be little downside for the company, which has three years to pay back the loan – although the government could end up owning a chunk of the business: “There are some things that come back to haunt you in three years,” the entrepreneur says. “But that’s three years away – if we’re still open then, I’ll be happy.”

The venture capitalist Robin Klein was among those who had been concerned that the government could end up trying to pick winners, but he is pleased with the way the scheme has turned out.

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Rolls-Royce is cutting jobs amid the virus crisis

The key, he says, is that companies need to have investors matching what the government puts in: “They need committed, involved investors, and therefore having the government Invest alongside those types of investors will mean that we’re finding the right companies.”

The £250m going into the fund is a relatively modest amount – the government’s furlough scheme is costing £14bn a month. If all the applicants wanted the full £5m, just fifty firms would be helped. Still, Kemi Badenoch says if demand proves high, then the Treasury will see what more can be done.

Today has seen Rolls-Royce – for decades probably the UK’s most important technology business – announce thousands of job losses. If those jobs are to be replaced, then fast-growing firms in sectors from video games to life sciences may need to be helped through these challenging times.

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