A British Business Bank non-executive director warned most businesses in the Future Fund scheme would become “zombie businesses”.

The £1.14bn scheme was set up in May 2020 by then-chancellor Rishi Sunak to support 1,190 pre-profit companies during Covid which couldn’t get funding via other means.

Of those companies, 400 have gone on to raise further equity. However, 703 active loans are yet to convert and 54 have since gone into administration. Events start-up Pollen, which raised $150m (£124m) in Series C funding in April, looks also set to add to that tally.

Now, according to BBB audit meeting minutes seen by the Financial Times and also reported by The Times, non-executive director Dharmash Mistry warned in June 2021 that businesses in the scheme had a “limited chance of growth to a sufficient scale for success”, resulting in “zombie businesses”.

>See also: British Business Bank chief executive to stand down

Mistry, an early-stage investor as well as a director helping to oversee the scheme at the BBB, also warned the portfolio was likely to have “a significant tail of dormant companies” in a February 2022 meeting and that the issue should be signalled in advance to manage expectations.

The Financial Times also revealed that from the outset the BBB presumed a 54 per cent chance of default by the companies and that “the probability of default would increase as we come closer to the first maturity in June 2023”.

The loans, which were available until January 2021, were designed to convert into equity over three years or be paid back if further capital is not raised.

It was mainly intended for start-ups in the life sciences and technology sectors such as Chesham-based Lightpoint Medical, which uses AI to accurately detect cancer in real time and medicinal cannabis start-up Avida Global. Both of which have gone on to raise further equity funding.

More on the Future Fund

Future Fund – government tech start-up bailout scheme how it works