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Future Funding here to stay?

09 September 2020. Published by Edward Colville, Partner

Latest figures show Future Fund's £642m investment in UK start-ups, but criticism of Government-backed business interruption loan schemes remains.

Latest figures for the British Business Bank (BBB)'s Future Fund, published on Monday (7 September 2020) show that the fund has now invested £642m in a total of 651 UK businesses.  The Future Fund, which was originally limited to £250m when it was launched in May, has continued to expand due to high demand.

Designed to protect innovative UK start-ups from the impact of the Coronavirus pandemic, the Future Fund offers UK-based companies an investment of between £125,000 and £5 million by way of convertible loan notes, provided that the Future Fund's investment is at least matched by private investors.  The businesses backed by the Future Fund are seen as critical to sustaining UK growth and innovation, given their potential for rapid growth and job creation.  Although the BBB's investment starts as a loan, the debt can convert to equity on future funding rounds, listings etc, potentially leaving the BBB with shareholdings in hundreds of UK businesses.

According to the latest figures, the largest sectors for Future Fund investments have been IT and communications, but around £100m has also been invested in financial and insurance businesses.  Many of these businesses have a tech or digital focus, although businesses in other sectors (including education and agriculture) have reported Future Fund investments.  Nearly 75% of the investments have been in businesses based in London and the South East, which remain home to the UK's largest technology hubs.

The BBB's focus on innovative start-ups looks set to continue, as although the application window for Future Fund investments is due to close at the end of September, the Treasury and the Department for Business, Energy and Industrial Strategy, have launched a review of the role of the BBB, with a view to establishing a new national development or infrastructure bank to help UK businesses grow.  However, despite the success of the Future Fund, there has been some criticism of the BBB's continuing focus on start-ups in technology and related sectors, while many much larger businesses are still struggling to access funds from the Government's larger business interruption loan schemes.  The BBB is also responsible for over-seeing the range of Government-guaranteed loan schemes made available to UK businesses during the pandemic (the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Larger Business Interruption Loan Scheme), which together total more than £50 billion of loans.  

Since the outset of the pandemic, large businesses (including retailers and airlines) and trade associations representing a broad range of sectors (e.g. retail, transport, hospitality and leisure) have been critical of their lack of access to the BBB's range of Government-backed schemes.  Where funding has been made available to UK businesses, it is typically by way of a bank loan through either BBLS or CBILS, leading to fears that the businesses borrowing these loans are simply pushing their cash flow issues down the line, with further restructurings and insolvencies likely in the months and years ahead as interest and repayment schedules kick in.  This is in contrast to the comparatively good deal offered on Future Fund investments, where in most cases the BBB's loan is expected to convert to equity as the business grows.  

While the BBB's commitment to helping innovative start-ups is admirable, the support offered to larger businesses across the UK is likely to remain a key political issue for years to come.