A survey of 200 UK start-ups has shown that approximately 40 per cent. have a cash runway of less than a year, half of who estimate their runway to be less than 6 months. This statistic highlights the uncertainty facing young companies as a result of fundraising delays caused by the Covid-19 pandemic.
The UK Government is launching the “Future Fund” in May 2020, a £500m co-investment fund for innovative high-growth companies facing financing difficulties due to the Coronavirus outbreak which may act as a lifeline for those eligible. The Future Fund will provide convertible loans to privately funded UK-based companies ranging from £125,000 to £5 million. The government initially aims to provide £250 million loans in total under the Future Fund (matched by at least another £250m of debt bridge financing from private investors).
The purpose of the Future Fund is to support businesses that have been unable to access other government business support programmes, such as CBILS, because they are either pre-revenue or pre-profit and typically rely on equity investment. Given the relatively small amount of funding that is being made available through the Future Fund, the initiative seems to be aimed at the smaller end of the market. It may be relevant to angel/VC funded start-ups, including FinTechs, which would not be eligible borrowers under the other loan schemes.
The conversion and repayment terms attaching to the loans may though make them unattractive to start-ups that have business models sufficiently robust to seek funding from alternative sources (e.g. their existing shareholders). On conversion, the loans convert into the most senior class of equity issued by the company at a 20% discount and on repayment at maturity are repayable with a redemption premium of 100% of the principal amount.
The full eligibility criteria have not yet been published and it is unclear whether there will be any exclusions for banks or other financial sector entities similar to the CBILS/CLBILS. At this stage, there are no such exclusions and it appears that the apparent purpose of this scheme is to boost innovation. The Future Fund will launch for applications in May 2020 and will initially be open until the end of September 2020.
For more information about the Future Fund, the terms and conditions attached to the loans and eligibility criteria, see: https://www.linklaters.com/en/insights/publications/2020/april/the-future-fund
A survey of 200 UK start-ups in fields ranging from advertising, education, fintech and software has shown the precariousness of young companies in the face of the Covid-19 pandemic. The most striking statistic in the survey by London venture capital firm LocalGlobe was that two-fifths of respondents estimated that their current runway period is a year or less. Silicon Valley-based research project Startup Genome estimated that around the world, 41 per cent of start-ups have a cash runway of just three months.