Start-ups have given the government’s new £250m Future Fund the thumbs-down, saying it’s pointless without offering investors tax relief at the same time.
Most UK angels are reliant on the Enterprise Investment Scheme (EIS) as a way of reducing their risk and rewarding them for making high risk investments in early stage businesses.
However, the government’s initial £250m Future Fund offers only the chance to co-invest alongside the government, which will provide loans to start-ups. In time, those loans may convert into equity, giving the government a stake into potentially thousands of scale-ups.
Founders say start-ups would be better off concentrating on existing tax-efficient fundraising or crowdfunding and ignore Future Fund entirely.
Michael Buckworth, managing director at solicitors Buckworths, said that excluding EIS relief for angels providing matching funding significantly weakened the scheme.
Buckworth said: “These angels will likely not invest as part of the Future Fund thereby excluding a swathe of earlier stage startups from the scheme.
He warned that an entire generation of start-ups could be lost, as things stand.
Future Fund thumbs-down
Luke Lang, co-founder of crowdfunding site Crowdcube, said: “Many entrepreneurs turned their back on the Future Fund weeks ago and got on with existing fundraising plans; the government’s new guidance on the Future Fund has proven them right. Sacrificing EIS tax relief and having to apply on behalf of a company will be a step too far for most private investors, making the scheme unsuitable for the majority of businesses.”
And Adam Dodds, founder and CEO of Freetrade, which has almost raised £7m through Crowdcube, went further, saying that all the Future Fund does is help venture capitalists take advantage of start-ups in desperate need of funding. Instead of benefiting start-ups, all the Treasury has done is take steps which primarily benefit the industry with the strongest influence and lobbying power.
Brent Hoberman, the tech entrepreneur and mentor, told the FT that the Future Fund should give venture capital-backed companies “longer runways to get through the crisis”.