The Future Fund from the UK Government
Today, the British government has revealed a plan for new Future Fund, which is designed to make sure that the productive companies, and the startups throughout the United Kingdom will get sufficient investment, to stay viable during this COVID-19 in the UK. The government has made this decision after increasing pressure from the tech startups and firm debate.
Primarily, the government is guaranteeing an entire of £250 million of the taxpayer’s money to a new fund. To unlock the investment that looks to be in form of a transformable loan note, the businesses should make sure a greater or equal amount of match funding from private investors.
The “Future Fund” is attached to start from May and will notice the UK government invest between £125,000 and £5 million in preparing the startups. It also says that the scale of this fund will be kept under review by indicating more taxpayer money could be provided in future. The applications will primarily be opened until the end of September.
In the meantime, there is some confusion with regards to how the convertible loans of the plan will work. Early reports about the UK treasury’s plan mentioned that these loans would transform into equity if it is not repaid. Also, it will lead some to believe that there would be an opportunity to repay the loan rather than having it transform into equity.
However, some critics have pointed out that if direct repayment option really existed, the UK taxpayer would be revealed to every downside with little of the upside. The best performing firms would choose to repay the loan, while the worst ones would choose to transform into equity. Simply, a convertible loan note system, which automatically converts, is favourable as the UK govt. needs to hold discounted equity in the startups.