The UK government launched various programs to support businesses during the difficult days of the COVID crisis. While there is plenty of rear-view commentary today, at that time, things looked pretty dire for the UK economy, and supporting businesses that were hammered during the lockdowns was needed. While the various debt programs made sense for more established firms, startups – a key sector of entrepreneurial UK – needed growth capital to stay afloat.
In normal times, early-stage ventures are backed by venture capital, angels, and in the UK – investment crowdfunding platforms.
Launched on May 20, 2020, and managed by the British Business Bank, the Future Fund issued hundreds of companies with convertible loans. The expectation was that most of these loans would convert into equity at some point, making the UK government an equity investor in these firms. A kicker to the program was Future Fund money needed to be matched by private capital live VC participation. Investment crowdfunding platforms participated in the process, listing multiple companies in need of funding as Future Fund participants.
Of course, early-stage firms are very risky, and many will collapse; all investors understand this fact. But if a company is successful, the returns can be significant. A report by Tech.eu in recent days reviewed the “highly criticized” loan scheme, noting that issuers that utilized crowdfunding platforms have performed better than others. Meanwhile, some of the Future Fund beneficiaries have failed.
To quote the report:
“It is understood that none of the startups that co-invested through Crowdcube and Seedrs have collapsed.”
While the program will be measured over an extended time, as it stands today, the Future Fund appears to be something of a success – especially with crowdfunding platforms.
Kirsty Grant, an executive at Seedrs, acknowledged certain shortcomings in the plan, but the Future Fund was a “critical form of support fo the UK’s startup ecosystem.”
“While we appreciate that in subsequent years further issues, such as the terms of convertible loan note, have become more acute, we still feel that the scheme was a useful tool in encouraging continued investment and an important source of funding for many businesses who would have otherwise likely failed,” said Grant.
Crowdcube co-CEO Matt Cooper added his perspective, which was similar to Seedrs’ experience.
“The problem was unprecedented in size and scale, and while the government’s solution was imperfect, inaction was not an option. The government needed to act swiftly to safeguard Britain’s startup and early-stage business ecosystem.”
Cooper noted that startups play a key role in fostering a robust economy while driving innovation.
While not perfect, this may be more of a situation where no good deed (or government program) goes unpunished. The reality is that the funding went directly into the real economy, spent on employees and equipment helping to backstop the UK startup space, which is the best in Europe. At the same time, some of the Future Fund beneficiaries have thrived.
The list of the firms that received Future Fund money is available here.
