What do startups and VCs think of the UK’s initiative to save startups?

Just 2 days ago, the UK Government unveiled an approximate €1.4 billion package to support the UK’s most innovative SMEs and startups. 

Around €283 million will be assigned in venture capital through the new ‘Future Fund’ scheme and around €851 million will go to a pre-existing loan and grant scheme, via Innovate UK, for smaller R&D companies. The Future Fund scheme in particular will issue convertible loans between around €141K to €5.6 million for startups and SMEs.

This move has been eagerly awaited by the 6000+ signatories of the Save our Startups campaign, who had previously penned an open letter to the Government. This curtly worded text pointed at the schemes of other countries like France and Germany, and demanded more support than the existing ‘Coronavirus Business Interruption Loan Scheme (CBILS)’. With supporters like Darren Westlake and Luke Lang (co-founders of equity crowdfunding platform Crowdcube), Tania Boler (Founder of femtech Elvie), Ines Ures (CMO of Deliveroo) and Brent Hoberman (Executive Chairman of the Founders Forum), among others (scroll down to see the impressive list), the campaign obviously didn’t go unnoticed. 

The UK Government was notably quick to first announce support for company employees and self-employed workers, vowing to pay up to 80% of staff wages, up to around €2,830 a month. However, many criticise the slow moving effects of these measures, with self-employed support not arriving until around June, and some companies falling through the eligibility criteria net.

Similarly, there has already been criticism of the new startup package proposed by the UK Government. For example, for a startup to be eligible for the Future Fund, they must have raised around 283K privately in the last 5 years, and have funding matched by private investors – a hoop which many early-stage startups will not be able to jump through. Said Future Fund is also not going ‘live’ for applications until May, with no guarantee of when support will reach startups.

With this in mind, we contacted startup founders and venture capital firms based in the UK to find out exactly what they think about the UK Government’s new funding scheme. Having collected a wide variety of responses, we found a few recurring themes which we hope will serve as food for thought.

A welcome start

Full eligibility criteria for the Future Fund has not yet been released on the UK Government website, leaving many startups and SMEs hanging in the balance for now. Despite the lack of clarity, a selection of startups and venture capital firms feel positive about the intention behind the measures and are able to sit with the current uncertainty, trusting in its future impact.

“As a health tech startup our growth has been off the charts over the last 6 weeks. Even so there is definitely still uncertainty from investors around building new relationships remotely. This new match funding should help to balance the risk associated with non-traditional deals and accelerate investment into UK tech.” – Philip Mundy, co-founder Pando Health.

“This is a welcome intervention from the Government. It will provide a vital lifeline to many nascent high-tech businesses, some of which may well go on to become huge success stories in the years to come, delivering the jobs, economic growth and tax revenue this brings. The requirement that private investment is first attained by companies wishing to access the scheme is a pragmatic mechanism to protect the taxpayer and will go some way towards ensuring that the most viable early stage businesses are supported. Of course, the detail as to how the scheme is implemented is essential, but directionally this looks like a strong boost for many startups across the country.” – Piers Maughan, COO for M:Qube.

“Despite the debate over this support, it’s a good sign to see the government supporting startups. Fintech for example is one of the fastest growing sectors in the UK driving change and financial inclusion. While the support enables startups to raise working capital, there’s a number of startups that won’t meet the minimum requirements and may not survive this. But it’s these challenging times that make founders more experienced and better equipped for future economic downturns. Understandably as the government is using public funds, and like any investment, particularly in riskier assets like startups, there should be minimum requirements and due diligence. This is a step towards greater investment in this space and governments taking more of a seat at the table, supporting the companies that will be driving their economies in the future and benefitting from the upside. This should in turn further benefit society and its citizens more broadly.” Stephanie Brennan, founder of Evarvest.

“Together, the Innovate UK and Future Fund pots represent a major commitment by the Government to support Britain’s most innovative businesses during the Covid-19 crisis. As has been widely discussed, the existing relief schemes, especially CBILS, were never going to be sufficient to protect this key part of the future economy. And with France and Germany having already announced packages for their startups and scaleups, there was a real risk that the UK ecosystem was going to emerge from this crisis in much worse shape than its Continental counterparts. So I think everyone who believes—as I so strongly do—in the power of ambitious, entrepreneurial companies to drive innovation, job creation and economic growth should celebrate this announcement.” – Jeff Lynn, Executive Chairman and co-founder of Seedrs.

“I think it’s a great first step towards supporting fast-growing tech companies. The UK should be home to the next Google and Apple, and support like this can help make that happen. Although, speed is going to be critical here. Hopefully, access to funding isn’t going to be shrouded in unnecessary paperwork :)” Ismail Jeilani, founder of Scoodle.

A leading role for venture capital firms

Responses from venture capital firms go both ways, but a number expressed to us that the Future Fund’s requirement to have funding matched by private investors gives them a way to roll up their sleeves, and join the fight in a collaborative way. 

“It’s great to see the Government responding to the call to back our world-leading startups. Some of these companies will be the powerhouses of the UK’s economic future – it’s critical to ensure the best ones survive through this crisis period. By making match funding a requirement of the Future Fund, it ensures that we private investors play our part too in bridging this funding gap together, and avoids some of the moral hazard of handouts and soft loans. I’ll be surprised if the taxpayer doesn’t make a decent return in the long run. The British Business Bank still has a big job to do to sort out all of the details, and the community stands ready to help. Some things still to watch out for – it’s important that EIS funding from private individuals won’t be excluded from matching due to the convertible loan note structure. It is also very encouraging to see the increased funding for R&D activity and the commitment from the Treasury to speed up payment of tax credits. These payments can be a vital lifeline for early-stage companies in these uncertain times.” Simon Menashy, partner, MMC Ventures.

Fears over the power balance 

On the other hand, venture capital firms and startups alike are convinced that requiring matched funding from private investors feeds too much power into the hands of private investors. In other words, it shouldn’t be up to them to make the call, especially when they might get spooked by too much uncertainty.

“While the new government initiative is an amazing starting point, we believe there still is a major gap that needs to be filled for many early-stage companies that do not fit the profile. The programme does not tackle all of the issues that early-stage businesses are currently facing and there is still a necessity to quickly gain funding and with a variety of partners.” Robert Walsh, Managing Partner of QVentures.

“A pot of £250 million will likely stretch to less than 100 businesses however and the need for the money to be matched means that private investors will still have to convince themselves that these businesses are investable at a time of great uncertainty. This has been a problem since the start of the crisis and is likely to limit take-up of the initiative. Hopefully this is just a first move to prove out the viability of such a scheme.” – John Milliken, CEO of Speechmatics.

Check the small print

Although the full terms for the Future Fund have not yet been released, it’s already clear that the funding will come with some strings attached. For instance, if the convertible loan supplied to the startup or SME cannot be repaid within a certain time frame, the UK Government will take a stake in the company. It’s important to be fully aware of the fine print before signing up, as a number of startup players are already cautioning.

“Great to see the government providing assistance for startups, however, it’s very important to look at the key terms and if this will work for your business e.g 20% discount on conversion, transfer rights, 36-month term etc. There are a number of investors still investing during this time so worth considering your options.”Marcus Dixon, co-founder of ChAI.


The outlook? There’s still a lot of work to do, and much information to be revealed. Without knowing the exact details of how these measures will be rolled out, when exactly in May 2020 they will come into force, or how long it’ll take for funding to arrive, the UK’s tech and startup scene is forced to sit on their hands. Either way, more will become clear over the next few weeks. Stay tuned!