At the start of the month I supported Brent Hoberman of Founder’s Factory in his appeal to the Government to help start-ups survive.
As a result of this I was asked to write a further article outlining how AgeWage could benefit from a Government intervention.
So I wrote another blog called “no need to lock-down innovation” and it looks as if what I was asking for happened. I put blogging in the same category as praying – it’s wish-fulfilment! I don’t put the Treasury in the same bucket as the Trinity, but it looks like my blog (and prayers) were answered. If intercession was needed, Brent and his team made it Thanks too to the founding and support partners of Save our Startups. You got us there!
I’d argued for an extension of the loans and grants made through Innovate UK and the Government have chosen to put an extra £1BN into Innovate’s war-chest. It’s critical that Innovate get this money into the start-up community quickly. I’m glad to see it will be focussing on companies who have already proved successful in grant applications. This will speed up the application process.
I’d also argued for an extension of the tax-breaks available to SEIS and EIS investors so that they could go further in funding start-ups. The Government may still do this , but it’s not part of the package announced yesterday.
Instead, the Government has hatched a match between institutional investors (venture capitalists buying private equity) and the Treasury. The Government will lend money on a one for one match (min £125k – max £5m) to start-ups taking inward investment. The money will be lent at 8% and will be redeemed within 3 years or the Government will swap the loan for equity on preferential terms (minimum 20% discount on the share price).
The idea is that this will reduce the risk to Venture Capitalists and speed up deals which are currently floundering. We have yet to hear much reaction from the VCs, who may well see the Government as eating their lunch. The deals they want to do – they would have done anyway and no amount of convertible loan notes will make a non-investable proposition attractive.
I hope that VCs will instead see the opportunities to invest in a wider range of companies , focussing not just on the obvious winners from the changing business environment (tech and pharma), but start-ups with purpose that aim to relieve distress. There is a job of work to help Britain recover and start-ups should be a part of the solution, not a drain on the tax-payer.
Having read the Future Fund term-sheet put out by the Treasury, my comments are
- 8% on the loan isn’t cheap – the small business loans currently available at 6% are cheaper but this money is more ample.
- The convertible loan-note is providing liquidity and is a bail-out, if a start-up defaults on the repayment terms, the Government is not obliged to buy equity, it can transfer debt to a commercial organisation.
- Although it has been signalled as a French style private/public partnership, the actual participation of the Government in the start-up is minimal
- The CLN is a tried and tested route for VCs to invest, this isn’t reinventing the wheel and looks VC friendly.
- The term-sheet is simple – the scheme launches in May and should be distributing money quick enough for most start-ups runways to remain open.
The amount being put into the Future Fund is not that great -£250m (dwarfed by the £1bn available through Innovate UK. I suspect that Future Fund may be more symbolic than vital. It is a timely intervention and being involved in a funding round myself at the moment, it will be interesting to see how it impacts on current negotiations.
Although the Government intervention doesn’t give me exactly what I asked for, it goes 95% of the way and does so in a way that protects the public purse while being VC-friendly. Rishi Sunak was a hedge fund manager. It shows.