A closer look at Government’s Future Fund vs our Rescue Equity Fund
There have been many discussions about the need to support startups in the UK since the beginning of the COVID-19 pandemic. The main theme in all of those discussions has been the fact that existing government schemes such as CBILS do not apply to a large number of startups in the UK.
More recently a new wave of initiatives emerged from the private sector urging the government to intervene, with the key focus of Save our Startups and other campaigns being to help VC-backed startups.
Capital Pilot’s contribution to the debate is its proposed “Rescue Equity Fund”, aimed at helping hundreds of earlier stage startups who are typically falling out of scope from the existing or proposed initiatives.
Today the government announced the launch of the “Future Fund” in partnership with the British Business Bank.
“This scheme will issue convertible loans between £125,000 to £5 million to innovative companies which are facing financing difficulties due to the coronavirus outbreak.”
Published 20 April 2020 From: Department for Business, Energy & Industrial Strategy and HM Treasury
In this blog post we will be looking at the proposed scheme in more detail and compare the key terms against our Rescue Equity Fund, to highlight the key differences and similarities between the two:
|Fund / Criteria||Rescue Equity Fund||Future Fund|
|Target companies||All early stage businesses who meet Capital Pilot’s Investability Rating threshold||All privately held businesses who have raised at least £250k over the past 5 years|
|Fund Size / Target Size||£5m – £50m||£250m|
|Number of Companies Saved||100 to 1000 Companies||50 to 2000 Companies|
|Most applicable to||Early / Seed stage businesses||Late seed / Series A businesses|
|Investment Type||SeedFAST ASA*||Convertible loan note|
|Investment Amount||£50k fixed||Between £125k and £5m|
|Use of proceeds||Working Capital / Survival Cash||Working Capital|
|Interest Bearing||No||Yes – min. 8%|
|Conversion Discount||Min. 20%||Min. 20%|
There is plenty more information to be released about the mechanics of the Future Fund. Without going into granular details at this stage and based on the information available so far, here is our preliminary conclusion:
- The criteria around minimum prior fundraisings as well as the match funding set by Future Fund, though aiming to act as a quality control measure, could be restrictive and could result in delays in fundraising. The £50k fixed investment through Capital Pilot’s Rescue Equity Fund can be deployed quickly with fewer external restrictions, whilst providing the quality control measures through our proven rating methodology.
- Based on the initial analysis, we do not see any conflict of interest between the two initiatives. If anything the two prove to be complementary. “Future Fund” focuses on primarily later stage venture-backed businesses whereas “Rescue Equity Fund” focuses on earlier stage and not necessarily venture-backed, though undoubtedly there will be overlaps between the two groups. To put this into perspective, here are some statistics about the total number of companies by stage being which fall within or outside the scope of the Future Fund:
- There have been a total of approximately 12,000 companies who have raised funds over the past 5 years (excluding exited, established or dead companies), of which around 35% would not meet the £250k threshold (Source: Beauhurst).
- These stats suggest that there will still be a large number of investable companies which will not be eligible for the Future Fund. This still does not take account of all those businesses which have been created more recently and are yet to receive any funding.
Finally, and as always, we very much welcome and fully support any initiative set by the government to support early stage businesses and the Future Fund is no exception. The Future Fund is undoubtedly a force for good and will help many startups survive. Capital Pilot will continue to focus on the deserving companies which are not covered by current schemes.