The UK Government is to invest in some of the UK’s most innovative startups as part of a bailout plan.
According to the FT, this is part of a £1.25bn plan to help “struggling UK startups” and venture capital-backed businesses struggling to survive the current lockdown. As part of that fund, a £500m co-investment fund will be provided for high-growth companies hit by the crisis, matching private sector money with state-backed loans that can be converted into equity stakes, and valued at a discount, if they are not repaid.
Smaller businesses focused on research and development can also apply for a part of a £750m budget in grants and loans. The £500m “Future Fund” will provide UK-based companies with between £125,000 and £5m from the government as long as the cash is at least matched by private investors.
The government is committing £250m towards the scheme, which will initially be open until the end of September. The scheme has been drawn up with the British Business Bank, the state-backed lender that already invests in many of the UK’s VC funds. To be eligible, a business must be an unlisted UK-registered company that has raised at least £250,000 in equity investment in the past five years.
A statement from British Business Investments CEO Catherine Lewis La Torre explained the £500m, made available today, will attract more institutional capital to the venture and growth asset class that is so important for high-growth businesses. “Through this Managed Funds Program, prospective investors will be able to access high quality venture and growth capital funds that will be investing in the success stories of tomorrow,” she said.
Gerard Grech, chief executive of Tech Nation, said: “Tech startups and scale-ups are crucial to the UK’s future growth, jobs and innovation. The £500m Future Fund and £750m for loans and grants for R&D for startups is a bold intervention, and although the full implementation details are still to be released, it is likely to give the sector a welcome boost in these unprecedented times.
“How to target the money effectively should be the next priority. Startups and scale-ups vary in their financial structuring and their regional location. It will be important to get the balance just right, across the UK and also across the different models of investments, from angel invested companies to VC-funded firms.”
Rick Holland, CISO and VP of Strategy at Digital Shadows, added that, historically, cybersecurity is a sector of the economy where spending still occurs even in economic downturns. “There are risks to smaller and emerging firms, but sales revenue and the amount of capital raised provides resilience. To avoid going extinct, startups must have enough funds to cover operating expenses over the next few months to weather the COVID-19 storm.”
Richard Hughes, head of the technical cybersecurity division at A&O Cybersecurity, said that with a booming global cybersecurity market, it is no surprise to see numerous smaller startup cybersecurity firms vying for a slice of the cake.
“Without an established customer base and repeat business to help weather the storm, smaller and emerging cybersecurity firms must seek new business to survive and herein lies the problem,” he said.