The British Business Bank announced on Tuesday that the U.K government now owns stakes in 158 start-ups following a series of taxpayer-funded loans that were converted into equity.
In April 2020, the UK Finance Minister; Rishi Sunak launched the Future Fund as part of an effort to cushioning the effect the coronavirus disease had on British businesses. In June last year, the rescue package was expanded to include companies that are based abroad and startups were able to apply for the fund between May 2020 and January 2021. Some of the firms that the UK government own stakes in include Gig ticketing app Dice FM, craft soft drink brand Gunna and DIY computer kit.
According to the British Business Bank which administers the Future Fund, the fund has provided 1,190 companies with convertible loans worth £1.14 billion ($1.58 billion).
According to CNBC’s report, “Convertible loans become equity stakes in a start-up’s next funding round — the theory being that this enables the government to make a return on the investment later down the line”.
According to the British Business Bank, 158 of the loans have been converted into equity shares as of the 31st of August, thereby indicating that these firms (who applied for the Future Fund program) have raised further private sector capital through equity funding round. 90 out of the 158 loans that have been converted into equity are companies based in London.
Speaking about the development, the Managing Director of Venture Solutions at the British Business Bank – Ken Cooper, in a statement, mentioned that “the Future Fund was created to increase the flow of capital to innovative companies at the height of the pandemic while ensuring long-term value for the U.K. taxpayer. As a shareholder in so many promising businesses, the Future Fund is well-positioned to support, and benefit from their continued growth”.
There is, however, a small group of people that feel that taxpayers’ funds should not be used to help struggling startups and feel like it is misdirecting funds to the wrong projects. Robin Klein, a co-founder of venture firm LocalGlobe, said last year that the Future Fund “risks misdirecting much-needed capital to the wrong part of the economy”.
It is, however, believed by quite a handful of people that the Future Fund is a smart move as startups are becoming the order of the day with investors flocking to invest in them.