Government expands Future Fund eligibility criteria

Changes to the government’s Future Fund eligibility criteria mean startups and loss-making companies that participated in accelerators will be now able to apply for investment through the scheme.

The £250m Future Fund, which was announced 20 April and launched in May, provides loans to UK-based companies ranging from £125,000 to £5m, subject to at least equal match funding from private investors.

Investment through the scheme comes in the form of a convertible loan note, giving the UK government equity shares in the enterprise when the funding converts.

Before the changes were introduced, enterprises had to 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 to be eligible for the loans.

Now, UK companies that have participated in accelerator programmes and were required, as part of that programme, to have parent companies outside of the UK will be able to apply for investment.

However, companies will still be required to meet the ‘substantive economic presence’ tests, whereby half or more employees are UK-based and/or half or more revenues are from UK sales.

“Our decision to relax this rule recognises the importance of many of the UK’s most cutting-edge startups as we bounce back from coronavirus,” said business secretary Alok Sharma.

“Accelerator programmes, such as TechStars or Y-Combinator, give businesses access to finance, mentorship and expert networks. Participants in accelerator programmes are often required to set up a non-UK parent company to participate, which means some did not meet the Future Fund criteria of having a UK parent company when it opened for applications in May.”

He added that more funding has been made available due to the popularity of the Future Fund, and that the “scale of the scheme will be kept under review”.

HM Treasury claims that, to date, more than 320 early-stage, high-growth firms have so far benefited from £320.6m of support through the fund.

“The popularity of the government’s Future Fund in only its first month of operation shows that the UK’s fastest-growing startups still require ongoing financial support to survive the coming months,” said Ritam Gandhi, founder and director of London-based digital agency Studio Graphene.

“It is promising to see steps being taken to broaden the pool of early-stage businesses eligible for support, as well as increases to the funding on offer.

“Yet I still believe the Future Fund fails to hit the mark. Many businesses who have been severely affected by the pandemic have been left without recourse, either as a result of being unable to quality for other government-backed schemes… or due to difficulties securing a loan from high street banks.

“The Future Fund, in theory, was introduced as an alternative to these schemes and aimed to plug some of these gaps. However, it continues to preclude struggling companies from accessing the help they need.”