As Coronavirus found its way in Europe, the pandemic was on the rise and soon it started affecting the startup companies and fundraising activities. It has literally shaken everyone’s plans leading to poor repercussions on the startups. While many are struggling to co-operate amid the turmoil, others are bearing huge losses.
The British government today unveiled their plan for a new fund promising £1billion worth of support for all the startups struggling from this coronavirus pandemic. The plan was announced by the Chancellor of the Exchequer Rishi Sunak pledging a total of £250 million of taxpayer’s money towards a new £500 million future fund that will help in the growth of private companies needing money. The rest £750 million of grants and loans from the Innovative UK, a British agency will focus on the research and development sector.
The Future Fund – How it works
The future fund would be launching in May. The startups first need to apply for the Future Fund, the applications of which are said to be open until September. In order to be eligible for the Future Fund, the startups need to have already raised an amount of £250,000 from private investors in the last five years. Other criteria are to be published.
Next, The British Business Bank would manage to offer the eligible startups the amount ranging from £125,000 to £5 million via convertible debt i.e. the money would be converted to stakes of the growing startups. It is also said that more taxpayer money might be committed to startups in the future. However, Startups worth more than £1billion are not eligible for this funding provided by the government. Earlier in April, some large startups asked the government for financial support and warned them that the tech-sector was at risk due to the Coronavirus pandemic. The government is considering these risks and is in talks with these startups to provide them the required funding.
Is this a controversial move from the government?
Robin Klein who is currently a partner at London-based VC firm Local Globe and an important tech figure said that the taxpayer’s money should be used in sectors like hospitality, recreation, transport, and charities. Funding Startup companies is not a good idea.
While funding startup companies during this pandemic is a good idea but the fear that the taxpayer’s money will fund the zombie startups is something which is on everybody’s mind.
The UK government was well aware of this debate and decided to structure its fund limit in a way that limits the use of taxpayer’s money on poor startups.