On 20th May, applications officially opened for the Treasury’s £500m ‘Future Fund’ – a taxpayer-funded coronavirus relief pot for businesses that cannot access other government relief programmes.
The scheme is vital in encouraging private sector investors to take some of the risk in rebooting the British economy. And while various COVID-19 relief schemes, including CIBLS and the Business Bounce Back Loan Scheme have provided important funding to tide businesses over throughout lockdown, the Future Fund provides growth funding to startups as they re-launch their businesses.
That said, the exclusion of EIS relief for angels providing matched funding (due to State Aid rules) significantly weakens the efficacy of the scheme. Most UK angels are reliant on EIS as a way of reducing their risk and rewarding them for making high risk investments in early stage businesses. These angels will likely not invest as part of the Future Fund thereby excluding a swathe of earlier stage startups from the scheme.
£250m of applications on the first day for the Future Fund demonstrates just how desperate startups are for funding to re-launch their businesses. Despite the numbers, our expectation is that many startups will have been unable to apply because they have been unable to secure matched funding. The exclusion of EIS and VCT investors from the Future Fund will have a marked impact on earlier stage startups, particularly those who are also not eligible for CBILS and Bounce Back Loans.
The government risks losing a generation of innovative startups – which are so important to our economy – if they do not introduce a temporary tax relief scheme for angel investors. Our view is that this should be similar to EIS but with a higher upfront rate of income tax relief, and lighter restrictions on repayment of debts incurred in the ordinary course of business.
The Government must act now to incentivise angel investors to invest in businesses who have not secured funding from the Future Fund or risk destroying vast contingents of the startup ecosystem.