Credit: Roli
The Government says that 60pc of applicants for Future Fund money have been successful.
SeedLegals, which built its own tool for start-ups to apply for the money, says that every single business which applied through its site and received a response went on to secure funds. The average amount was £608,000, it found.
Investors claim that restrictions on co-investment alongside the Future Fund’s convertible notes has blocked a large number of businesses from applying for money.
Any investor which backs start-ups using the Government-backed Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Schemes is unable to have funding matched by the Future Fund. This has led to a cut in the pool of potential recipients as many start-ups chose to stick with EIS backers.
“If it’s a toss-up between taking a bit less money and taking the Future Fund, all my founders have said ‘Actually we’d rather just take a bit less money,’” says Reece Chowdhry, the head of RLC Ventures.
“Because they narrowed the pool of investors that they can co-invest alongside, they’re left with a very small group of the market,” he adds.
Anthony Rose, the chief executive of SeedLegals, says the Future Fund “was not the saviour of start-ups that many had hoped for or were able to take advantage of and it did not come without some significant issues”.
The Future Fund is not the first time that Government backing of technology start-ups has provoked criticism. The Register reported in 2014 that former model Lily Cole’s “gift economy” business Impossible was given £200,000 in grants before it began selling items such as £2,200 stools made of bread.
Start-ups which did apply for Future Fund money include Lintel, a financial technology company.
The start-up received an unknown amount of Future Fund backing for its banking service which hasn’t launched or been given regulatory approval. In 2018, Lintel was a dormant business with just £960 in assets. Its latest accounts show £197,000 in assets this year but just one employee.
Other businesses make money in a way that would make many more conservative MPs blush.
One recipient is Killing Kittens, a company notorious for its sex parties. Its founder, Emma Sayle, is a former school friend of the Duchess of Cambridge, Kate Middleton. Sayle says her business, which faced a funding hole due to social distancing, deserved support like any other.
Emma Sayle, CEO of Killing Kittens
Credit: John Nguyen/JNVisuals
She criticises “narrow-minded” critics who questioned its backing, saying it has a thriving online social network focused on sex-positive workshops and dating. “Parties with sex is a small part of our set up. We have spent three years building our app. We give women a voice.” As the adage goes, sex sells, and the Government’s bet could pay off.
But even Sayle, whose company secured £170,000 from the fund, is not entirely satisfied. “The fund was written by venture capitalists for venture capitalists. They are the ones who are benefiting most.” Some founders have questioned the structure of the deals. While the Future Fund gives quick access to cash, it must be repaid after 36 months. If the start-up secures equity funding, then the loan converts — if it fails to, it must be repaid plus a premium.
“The agreements are so pro-investor,” Georgina Nelson, founder of TruRating, told The Telegraph’s Technology Intelligence Live event last month. “It is a huge amount of risk to take on as a founder.”
Some MPs are also worried a lack of transparency means it is not clear if the taxpayer is getting value for money. Darren Jones MP, chair of the Business Committee, says: “There should be more transparency around it. There have been a lot of public guarantees when there is very little guidance. In the very early phases it is legitimate to say we wanted this out of the door quickly — but after the first months, there is an expectation that ministers would have identified these problems.”
Some investors privately worry that taking Future Fund money could in the future be seen as a black mark which suggests that the companies were unable to raise private funding during the pandemic, potentially scaring off future backers.
The final outcome of the Future Fund is uncertain. “I’m sure there is going to be a swathe of companies from next year that have had funding through the various schemes that will not be around,” Page says. “The Government will lose a lot of money.”
A Treasury spokesman said: “To qualify for the scheme and ensure taxpayers money is protected, companies must secure match funding from private investors and have an existing track record of raising investment.”
The fate of the Future Fund will only be clear once the loans mature. Only then will the public find out if the Treasury has received its money back plus equity in promising businesses, or is left with worthless stakes in failing companies.
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