Coronavirus: New support package for innovative firms

The Government announced £200m of accelerated, and £550m of new, targeted support for the most R&D intensive small and medium-size firms would be available from May 2020 through the Innovate UK’s grants and loan scheme. In addition, a new Future Fund will provide convertible loans, in partnership with the British Business Bank, to UK-based innovative companies, of between £125,000 to £5m, subject to at least equal matched funding from private investors.

The Chancellor has announced further action to support UK businesses that drive innovation and development and are affected by the Coronavirus crisis.

The package, which is headlined to be £1.25 billion, is made up of the following:

• A £500 million investment fund – the Future Fund – for high-growth companies impacted by the crisis, made up of £250 million funding from Government and £250 million from the private sector; and
• £200m of accelerated, and £550m of new, targeted support for SMEs focusing on research and development through the Innovate UK’s grants and loan scheme.

The Future Fund

Delivered in partnership with the British Business Bank and launched in May, the fund will provide UK-based companies with between £125,000 and £5 million from the Government, with private investors at least matching the Government commitment. These loans will automatically convert into equity on the company’s next qualifying funding round, or at the end of the loan if they are not repaid. To be eligible, a business must be an unlisted UK registered company that has previously raised at least £250,000 in equity investment from third-party investors in the last five years.

The Government is committing an initial £250 million in funding towards the scheme, which will initially be open until the end of September. The scale of the fund will be kept under review.

A business will be eligible if it:

• is based in the UK;
• can attract the equivalent matched funding from third-party private investors and institutions; and
• has previously raised at least £250,000 in equity investment from third-party investors in the last five years.

The Government has published headline terms here.

Innovate UK’s grants and loan scheme

Innovate UK, the national innovation agency, will accelerate up to £200 million of grant and loan payments for its 2,500 existing Innovate UK customers on an opt-in basis. An extra £550 million will also be made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding.

UPDATE July 2020

To date, more than 320 companies have benefitted from £320 million of Future Fund support.

Relaxation to the scheme’s eligibility criteria means that UK companies who have participated in highly selective accelerator programmes and were required, as part of that programme, to have parent companies outside of the UK will now be able to apply for investment.

Accelerator programmes, such as TechStars or Y-Combinator, give businesses access to finance, mentorship and expert networks.

Participants in accelerator programmes are often required to set up a non-UK parent company in order to participate which means some did not meet the Future Fund criteria of having a UK parent company when it opened for applications in May.

The change, which applies from 30 June, covers accelerator alumni only. Companies will still be required to meet the ‘substantive economic presence’ tests (that half or more employees are UK-based and/or half or more revenues are from UK sales).