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Support for start-up businesses

The Chancellor has announced £1.25bn of support for start-up businesses.

This support consists of a £500m Future Fund, of which the Government will contribute £250m, and a further £750m of funding for research and development through Innovate UK.

The UK is a world leader is innovation and technology but because start-up technology businesses do not have historic profits, or developed assets, they are generally unable to access traditional lending structures, including finance through the Coronavirus Business Interruption Loan Scheme (CBILS). Instead, these entities typically generate early stage investment through private investors including angel investors and venture capital firms.

Innovate UK

£200 million of grant and loan payments for existing Innovate UK customers is to be accelerated, although an opt-in is required, and an extra £550 million will also be made available to increase support for existing customers. £175,000 of support is going to be offered to just over 1,000 companies that do not currently receive Innovate funding.

Future Fund

The Future Fund, with applications having opened on Wednesday 20 May, provides start-up entities with access to convertible loans of between £125,000 and £5,000,000. Criteria for accessing these loans are:

  • The company needs to have raised £250,000 from private investors in the between 1 April 2015 to 19 April 2020 inclusive.
  • The Government will match the investment raised from private investors between £125,000 and £5,000,000.
  • The funds are partially ring-fenced so that the Government’s money cannot be used to repay other borrowings, pay bonuses or placement fees.
  • The investee company must be the ultimate parent company and also a UK company that was incorporated prior to 31 December 2019. Companies that have registered overseas in order to participate in accelerator programmes are also eligible.

Fledging companies that do not have a history of raising money will not qualify for the funding. And for many businesses the challenge of attracting the investment from private investors required for the Government to match their contribution will remain. Business incorporated in the US through accelerator programmes will also be ineligible.


The application process is investor-led with a lead investor designated to submit the online forms. The lead investor themselves must invest at least £12,500. Applications to the Scheme, which was initially open until September, must be done through the British Business Bank portal. In September 2020, the Chancellor announced that the Scheme would be extended until 30 November 2020.

The Future Fund will be allocated on a first come, first served basis until the Government’s pot of £250,000,000 has been utilised. Rishi Sunak has previously said that the Scheme will be extended further if necessary, but early applications would be advisable.


The loans will convert at a discount of 20% to the prevailing market price in the event of a qualifying funding round. Interest is charged at 8% on the par value. These fixed terms can be increased by other investors, which the Government will also be entitled to receive. At the end of three years the loans are redeemable at a premium of 100% to the par value of the loan.

The convertible loan is not eligible for the Enterprise Investment Scheme (EIS) and for investors there is a risk that future investment into the business will not be eligible either. The Government has confirmed that historic EIS claims will not be tainted by the issue of the loan note.

Other notes

Funding from Innovate UK, and COVID-19 related support measures, are deemed as state aid. Any research and development project for which State Aid is received is treated as subsidised and therefore not eligible for SME tax relief in respect of R&D. Care should be taken that the benefit of money received is not outweighed by the benefit of future R&D credit claims.

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