Leading audit, tax and consulting firm RSM has welcomed today’s launch of the £500m Future Fund but has urged Government to rethink the detail so that private investors (e.g. business angels and individual investors) using EIS and SEIS schemes do not suffer ‘collateral damage’ and the fund can benefit all stakeholders.
The Future Fund is intended to offer monetary support to UK start-ups through government loans which could range from £125,000 through to £5m. Each loan will also be subject to matched funding from VCs and private investors. The idea is that eligible start-ups will then repay the loans or convert them into equity at the next funding round, or after three years.
Take-up is expected to be high, particularly during what continues to be an unusually challenging period for innovation and is a welcome development for UK start-ups that are increasingly cash strapped. Nevertheless, RSM believes the fundamentals of the Future Fund in its current form are attractive to venture capital (VC) funds but are unattractive to private investors who typically use the EIS and SEIS structures. Since many innovative UK businesses are backed by a combination of both, the Future Fund favours VCs.
Charlie Jolly, partner and head of private equity at RSM, comments: ‘Private investors and venture capital funds provide crucial funding to innovative UK businesses and, to be clear, the Future Fund will support both. However, the matched funding requirements in their current form are less attractive to private investors than they are to VCs so the likely result will be that private investors’ stakes are diluted.
‘No successful economy operates without innovation, so it is crucial that funds such as these are configured in a way that maximises opportunity for all, as opposed to, in this case, being VC-biased in its detail.
‘Angel investment is key to how innovation is funded in the UK and whilst it’s important to the economy today, it is absolutely vital to our economic future.’
RSM also believes the size of the fund will need to grow if it is to provide truly sustainable provision for UK start-ups. Charlie Jolly comments: ‘The initial fund size is a good start, but it’s the tip of the iceberg in terms of what UK innovation will require if it is to remain globally competitive. It’s encouraging that the Chancellor has hinted at further funding should the scheme prove successful.’