The British government unveiled plans for a new “Future Fund” designed to help start-ups receive enough investment to remain viable during the coronavirus crisis.
Initially, the government is pledging a total of £250 million (€286m) of taxpayer’s money to the new fund (delivered via the British Business Bank). To unlock the investment — which looks to be in the form of a convertible loan note — businesses must secure an equal or greater amount of match funding from private investors, and be a UK registered private company that has previously raised at least £250,000 in private investment in the last five years.
There’s some confusion with regards to how the Future Fund’s convertible loans will work in practice. Early reports of the UK treasury’s plans stated that “the loans will convert to equity if not repaid,” leading some to believe that there would be an option to repay the loan instead of having it convert to equity during a company’s next funding round. Critics point out that if a straightforward repayment option did exist, the UK taxpayer would be exposed to all of the downside with very little or none of the upside. In practice, the best performing companies would likely choose to repay the loan and the worst performing companies would opt to convert to equity.