The Treasury is set to expand a coronavirus bailout scheme aimed at supporting British start-ups to include those that have been blocked after moving their headquarters overseas to tap US investors.
The government is expected to end up with stakes in scores of the UK’s start-ups under its Future Fund programme, which offers loans of up to £5m that can convert into equity stakes in promising tech businesses that are struggling to survive the lockdown.
The scheme is now set to be expanded, according to people familiar with the matter, to allow more start-ups to join given the strong demand in its first month in operation.
The Future Fund has so far been open only to companies incorporated in the UK, although this has meant that British entrepreneurs who have moved their legal headquarters overseas to raise funds from international investors have been left out.
Treasury officials have raised concerns that this has locked out some of the fastest-growing companies from accessing crucial funds to see them through to their next funding round, according to people familiar with the talks.
Many start-ups operate at a loss given ambitions to grow businesses rapidly, which has meant that they have been unable to access other government-backed loan schemes.
Dom Hallas, executive director for Coadec, which represents Britain’s tech-led start-up industry, said: “A lot of the very best Silicon Valley accelerators including the likes of Y Combinator ask participants to set up as a US entity to join their programme and receive investment there.”
A HM Treasury spokesperson declined to comment on changes to the Future Fund.
The Future Fund is open to UK-based firms that have previously raised at least £250,000 in equity investment from third parties in the past five years, have half or more of their employees based in the UK or generate at least half of their revenue through UK sales.
Government loans of up to £5m need to be matched by private sector investment, and will convert into equity unless investors choose to repay the cash.
UK chancellor Rishi Sunak is said to be keen to see the government take stakes in companies that could become world-leading in areas such as AI and life sciences.
Mr Hallas said that many such overseas-domiciled start-ups consider themselves British companies, create jobs and have their main offices in the UK.
“They just set up as a US entity to join these top programmes. It makes no sense for the government, who want to attract these top companies to take investment from the Future Fund to see return for the taxpayer, to accidentally leave them out.”
Tech investors expect extra funds to be made available for more start-ups this week when the Treasury updates its Future Fund numbers on Tuesday.
The fund has already exceeded the initial £250m that was allocated by the Treasury, according to people familiar with the situation. The Treasury said last week that about £236m had been lent in its first month to more than 250 companies. But the Future Fund had already more than double the number of applications at 623, and this number has risen sharply again, according to those people.
The government has said that it will extend the amount if required. A Treasury spokesperson said: “We are backing innovative firms with a comprehensive package of support, including the Future Fund to provide capital to high-growth companies. The initial £250m for the fund was an indicative figure, and we have always said more can be made available if needed.”