Recovering Boris Johnson gives venture capital a shot

on Apr 21, 2020
Updated: Jun 1, 2022
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  • The UK government yesterday announced plans to boost high-growth enterprises owing to the Covid-19 crisis.
  • The scheme d믭 Future Fund will see businesses get convertible loans of between £125,000 and £5,000,000.
  • Government will be investing alongside other private investors.

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Boris Johnson’s government yesterday announced plans to boost high-growth enterprises to make it through this tough period of the Coronavirus pandemic. The state scheme dubbed the Future Fund is made up of a £250,000,000.00 venture investing kitty set to be deployed through the British Business Bank.

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The fund aims at helping viable upcoming businesses that may struggle to persevere the current economic downturn or may have been hindered from accessing funding by the current government policies.

In what many political opponents may perceive as a comeback weapon for the Prime Minister whose political supremacy, according to Polling expert Sir John Curtice, has gone from ‘very, very strong’ to a weak one, the government will be issuing convertible loans ranging from £125,000.00 to £5,000,000.00 to qualifying companies.

Prominent venture capitalists have been proposing a raft of measures in the way businesses are funded in the UK, most of which have now been captured in the new scheme.

The government investments to various businesses will be made in forms of convertible loan notes (CLNs), a common funding technique used by venture capitalists. Under the terms of the financing, loans advanced to businesses will be convertible to equity at a 20% discount to the price per share as paid by other investors.

The state proposes to invest alongside private partners but their placement will not comprise more than 50% of the bridge fund.

To qualify for the fund, businesses will need to fulfil the following requirements:

  • The company must not be listed but be registered in the UK
  • The business must have raised £250,000.00 in aggregate from private third-party investors in a previous funding round in the last five years; and
  • It must have a substantive economic presence in the UK.

The impact of the fund has been projected to extend far beyond bailing out companies during very tough times. Experts say the scheme could also propel innovative companies to forge on, as international competitors lag.

In the end, this should be great news to a sector that contributes significantly towards the growth of the UK economy, with the digital space alone estimated to be providing jobs to over 2.9 million people in the UK. With that, hopefully, the government learnt from past financial crises and will bail out deserving companies while taking up strategic stakes.

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