Investment in Venture Companies during COVID19 – government and private fundingPosted 2020 by Chris Davies
Grabbing few headlines, but UK companies, particularly start-ups in the early phases of their existence are taking a hammering in these unchartered times. A recent survey published by the UK EIS Association (“EISA”) has identified that of 250 small-medium companies currently undertaking fundraising there is a 75% contraction in investment offers, when compared to equivalent months in 2019. Some 70% do not expect their company to survive more than 6 months without new funds. And nearly half of those expect to secure less than 20% of the funds they need.
Companies at this risky end of the investment spectrum have always struggled to secure adequate funding, and yet most recognize that these companies are fundamental to creating innovation and securing all our futures, never more so than now. As available funds dry up, now is the time for an urgent response.
There is now a rescue mechanisms to consider, recently announced by HMT (the Future Fund).
The £250 million Future Fund is government-backed in conjunction with the British Business Bank and offers companies with a fundraising history (being a minimum of £250,000 in equity in last 5 years) the opportunity to apply between May and September 2020 for convertible bridge loans between £125,000 and £5,000,000. The full eligibility criteria nor application process have yet been published but some terms are known, such as the need for the loans to be matched by other external investments, and the funds can only be used for the company’s working capital requirements. As the Fund total value is currently capped and the facility could be popular then we suggest that your first step is to register interest with us as soon as possible. We can help you do the pre-qualification checks and assist with application once the offer goes live.
EIS & VCT
Of course, EIS and VCT remain available. Investors in these arrangements typically have an appetite for riskier start-up investment and perhaps the current pandemic adds an incentive, and could certainly affect valuations. Our view is that an offer of private (rather than government) funds during these straightened times may still be forthcoming to companies. Of course how this will be affected by the EIS/VCT solvency criteria and how any Future Fund investment will impact on a company’s current tax-relieved investments, remains to be seen. However, we have extensive experience of working with companies seeking pre-qualification tax assurance in EIS and VCT – if you want to keep abreast of this fast- moving field please get in touch.
To discuss please call your usual tax contact here at Ross Brooke, Phil Kinzett-Evans on 01635 555666 or David Jones on 07922 425173.
You may also wish to read the updated guidance on the Coronavirus Business Interruption Loan Scheme