Support for start-up / early-stage businesses
The Chancellor has announced £1.25bn of support for start-up / early-stage businesses.
This support consists of a £500m Future Fund, of which the Government will contribute £250m, and a further £750m of funding for research and development through Innovate UK.
The UK is a world leader is innovation and technology but because start-up technology businesses do not have historic profits, or developed assets, they are generally unable to access traditional lending structures, including finance through the Coronavirus Business Interruption Loan Scheme (CBILS). Instead, these entities typically generate early stage investment through private investors including angel investors and venture capital firms.
£200 million of grant and loan payments for existing Innovate UK customers is to be accelerated, although an opt-in is required, and an extra £550 million will also be made available to increase support for existing customers. £175,000 of support is going to be offered to just over 1,000 companies that do not currently receive Innovate funding.
The Future Fund, with applications open from Wednesday 20 May, provides start-up / early-stage entities with access to convertible loans of between £125,000 and £5,000,000. These loans convert at a subsequent funding round at a discount of 20% on the equity value. Criteria for accessing these loans are:
- The company needs to have raised £250,000 from private investors in the previous five years.
- The Government will match the investment raised from private investors.
- The funds are partially ring-fenced so that the Government’s money cannot be used to repay other borrowings, pay bonuses or placement fees.
Fledging companies that do not have a history of raising money will not qualify for the funding. And for many businesses the challenge of attracting the investment from private investors required for the Government to match their contribution will remain.
The loans will convert at a discount of 20% to the prevailing market price in the event of a qualifying funding round. At the end of three years the loans are redeemable at a premium of 100% to the par value of the loan.
Funding from Innovate UK, and COVID-19 related support measures, are deemed as state aid. Any research and development project for which State Aid is received is treated as subsidised and therefore not eligible for SME tax relief in respect of R&D. Care should be taken that the benefit of money received is not outweighed by the benefit of future R&D credit claims.
We are here to help
If you would like to discuss the support available, or have any other queries, please get in touch with your usual Baldwins contact.
Please also refer to our insights page for further COVID-19 related information, which is regularly updated with the latest news, insight and details of the economic support and measures as they are announced by our Government.