This week the Times published an article on the Future Fund and its performance, slamming it for “over 30 failures.”
Managed by the British Business Bank, the Future Fund was one of several COVID support programs designed to backstop firms impacted by the pandemic. The Future Fund was created to aid early-stage ventures that typically do not have the capacity to borrow money as they frequently generate losses but need growth capital to continue operations. Opened to applications in the spring of 2020, the program allowed UK-based companies to apply for a convertible loan of between £125,000 and £5 million. The program required an equal match of funding from private investors like VCs or angel investors. Several securities crowdfunding platforms participated in the program.
Expectations were that Future Fund loans would most likely convert into equity, meaning the UK government would be shareholders in these early-stage, risky ventures – alongside private money.
At the time the Future Fund was announced, one supporter stated:
“Those who stand to benefit from the Future Fund are primarily small private companies in the technology and life sciences sectors, which to date have not been eligible for government support under the CBILs and CLBILs schemes … the UK government intends to support promising home-grown companies that have previously secured financial backing from other investment sources.”
Another advocate stated, “many Fintech companies have been unable to access the other loan schemes available, so this will provide vital funds to firms in the sector.”
According to the Times article, “filings show taxpayer losses linked to the scheme from these handful of early failures could be as high as £40 million, and more are likely to follow.”
The article adds that there is “no suggestion” that any company broke the rules nor misrepresented themselves.” The report shared that 1190 companies benefitted from £1.14 billion and 265 recipients converted into equity. The article questions whether “the state took too cavalier an attitude to investing taxpayer cash.”
In a Twitter thread, Dom Hallas, Executive Director of Coalition for a Digital Economy (Coadec), takes the article to task. Hallas calls it a “hatchet job” that is “way off the mark.”
Real hatchet job on the Future Fund in The Times today. Thought I’d do a quick 🧵 on why I think this is way off the mark – as someone who was deeply involved and along with others lobbied hard for its creation.https://t.co/Sylsih9H9P
— Dom Hallas (@Dom_Hallas) April 28, 2022
Hallas says he has “lots of issues with the piece” pointing to the fact that just 34 out of 1190 have failed, adding that it will most certainly go up, but currently a very strong showing for the Future Fund. Calling it a “rewriting of history,” Hallas states:
“It’s easy to say now that it wasn’t needed. And it’s good the ecosystem has been so resilient and successful. I would argue that that’s at least in part down to the confidence the Future Fund gave the market.”
Hallas notes that at the time the program was announced, a campaign to create the program had over 6000 signatures including MPs, funds, and others.
“… let’s be super clear that the fund – whilst not perfect – has been successful at supporting the robust startup funding ecosystem.”
Most early-stage firms take years to develop. And yes, many, if not most, will fail. But that is how capitalism works. An innovation-driven, entrepreneurial economy entails risk but is also the engine of prosperity and job creation. While you can debate whether the government should be an investor in private firms, at the beginning of the pandemic things were rather dire with the possibility of an entire generation of startups being wiped out. Perhaps, a better report could be as to what type of returns are delivered to investors several years from now as 337 loans have converted into equity, according to the British Business Bank. But like other venture investments, this takes patience.