UK founders are confused about accessing a £250 million scheme intended to rescue their startups from death — here's everything we know about the Future Fund
The UK government has launched a £250 million rescue fund for startup founders whose businesses are struggling during the pandemic, but entrepreneurs are confused about whether they'll be eligible.
The £250 million Future Fund was launched in response to an industry campaign to save startups that might collapse. Its quick turnaround means the UK government has yet to publish the fine detail of how it will dole out the cash, who will qualify, and the terms of its loans.
Critics of the fund say the current terms lack clarity and involve onerous terms of startups.
But a source close to the Future Fund says startups can expect more clarity in the coming days.
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UK founders hoping to stave off the collapse of their startups say a £250 million rescue scheme from the government is confusing, has onerous terms, and will ultimately only help a minority of firms survive the crisis.
The British government launched the £250 million Future Fund on April 19 as a backstop for startups facing ruin as COVID-19 puts a freeze on custom. The fund is due to spin up from mid-May, but as yet there are only preliminary details about how it will work.
While founders have welcomed the quick government response, they have reacted with dismay at the terms so far.
"There is a huge amount of ambiguity in the drafting," said Hamish Grierson, CEO and cofounder of healthcare firm Thriva, describing them at face value terms as representing some of "the most egregious" on the market.
"Something is, of course, better than nothing," he continued. "But for this particular financial instrument, I think there's a serious question mark over whether its going to get the kind of uptake they're expecting."
How will the Future Fund work?
The £250 million fund will be handled by the state-backed British Business Bank. Startups will need to apply to the British Business Bank for the funding, and can obtain between £125,000 and £5 million which will take the form of a loan. But there's another hurdle — in order to qualify, startups will also need to match the loan with private investment.
The loan will therefore comprise both government and private cash, and will automatically convert to equity on the startup's next "qualifying" round of funding, at a valuation discount of 20% or higher.
But the devil is in the detail.
The government has published high-level terms but has yet to provide more detail on the application process and criteria.
Anthony Rose, a serial entrepreneur and chief executive of legal platform SeedLegals, published a critical post analyzing the scheme which was widely shared among UK entrepreneurs.
Among other concerns, he noted that a pot of £250 million isn't going to stretch very far.
"Regardless of the rules, it's not going to save your startup, it's not enough...