Government's package to support tech start-ups


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The impact of Coronavirus on UK tech start-ups has created a raft of challenging decisions. Some founders have been faced with the overwhelming decision to cut staff numbers in order to conserve cash; otherwise they are at risk of running out of money. In addition, tech start-ups who are at the embryonic stage may have experienced swift reduction of investor interest. However, for other tech start-ups, funding appears to remain robust where they have a pandemic purpose, such as telemedicine or mobile software for social care facilities.     

Furthermore, a gap had been identified in that the current Coronavirus Business Interruption Loan Scheme does not apply to start-ups. Accordingly, to help support these early-stage businesses, the Government has announced a support package to help the UK's innovative start-ups. It comprises of issuing convertible loans and also making available grants and loans to smaller businesses focussed on research and development. 
In this article we have set out the salient points of what the package includes which may support various tech start-ups during this unprecedented time. Full and final details of scheme will be published by the Government in due course.   
Future Fund 
The Government's 'Future Fund' scheme involves issuing convertible loans to innovative companies which are facing financing difficulties due to the Coronavirus outbreak.Initially, the Government will make up to £250,000,000 available in total for the scheme which will be open until the end of September 2020.

To be eligible for a loan under this scheme a business must:

  • Be an unlisted UK registered company
  • Have raised at least £250,000 in equity investment from third party investors in the last 5 years
  • Attract the equivalent match funding from third party private investors and institutions (see details below).


    The Government loan will constitute no more than 50% of the funding being provided to the company, with the remaining amount provided by matched investors. It is important to note that the minimum amount of the loan provided by the Government to the company will be £125,000 and the maximum amount will be £5,000,000.
The Government loan will constitute no more than 50% of the funding being provided to the company, with the remaining amount provided by matched investors. It is important to note that the minimum amount of the loan provided by the Government to the company will be £125,000 and the maximum amount will be £5,000,000.
In addition, the funding can only be used for working capital purposes and cannot be used by the company to repay any borrowings, make any dividends or bonus payments to staff, management, shareholders or consultants or, in respect of the Government loan, pay any advisory fees or bonuses to external advisers.
The funding will automatically convert into equity at a minimum conversion discount of 20% unless the debt is repaid by the company. 
The Future Fund will launch in May 2020. 
R&D Grants & Loans
In addition, the Government has pledged to invest in innovation by announcing that £750,000,000 will be made available through grants and loans from Innovate UK to help smaller businesses focused on research and development. The first payments will be made by mid-May. 
Summary
Whilst we have started to see the adverse effects Coronavirus is having on start-ups in the technology sector, it is encouraging to see the Government's recognition of the importance of investing and supporting such start-ups that could underpin the future economic growth of the UK.   
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