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Future Fund ‘could be updated in weeks’, say Cambridge insiders

Andrew Williamson, managing partner of Cambridge Innovation Capital
Andrew Williamson, managing partner of Cambridge Innovation Capital

The government’s latest scheme to support UK businesses, the Future Fund, is open to applications from May 1 – but Cambridge-based sources believe the system will be “tweaked” within the next fortnight.

To be eligible for a Future Fund loan from the government (via British Business Bank), a business must be “an unlisted UK registered company that has raised at least £250,000 in aggregate from private third party investors in previous funding rounds in the last five years and have a substantive economic presence in the UK”. Loans from £125,000 to £5m will be made available, with half of the bridge loan being match-funded by investors.

But, for many Cambridge start-ups, the scheme has hit a snag even before being launched: most angel investors use tax-advantaged equity vehicles – such as the Enterprise Investment Scheme (EIS) or the Venture Capital Relief (VCR) scheme – to invest in the city’s start-ups, and EIS and VCR-based investments do not currently count towards the match-funding target.

Describing the new landscape, Andrew Williamson, managing partner of Cambridge Innovation Capital, said: “The Future Fund is government support for our ecosystem, which includes the knowledge-intensive, science and engineering sectors in Cambridge. We’re pleased to see that the Chancellor, Rishi Sunak, realised something big and bold needed to be done – clearly a lot has been learned from the financial crisis 10 years ago.

“Of the first two programmes – furloughing and CBILS – the furloughing scheme has been moderately useful for businesses in our portfolio, which tend to be knowledge-intensive. They’re involved in research, design and engineering, which can continue during the lockdown. However, there’s been an interruption to their sales and marketing functions, where employees have been unable to travel and meet with customers. For some of these employees we’ve used furloughing to reduce costs. We should give big credit to the government for saying the furloughing programme would be up and ready in one month – and it was.

“CBILS has been less useful for businesses in our portfolio – it’s designed for operating firms which had positive cash flows before Covid-19, and where the firms expect positive flows after Covid-19 eases off. For pre-revenue knowledge-intensive companies, CBILS is not suitable.”

In theory, the Future Fund should be the ideal vehicle for these pre-revenue knowledge-intensive companies.

“I think the Future Fund will be a help,” he says, “and several businesses in our portfolio will apply.

“The biggest concern is that the Future Fund requires at least one-to-one matching from existing investors, and a number of companies have investment from the EIS or VCR programmes, and the constraint is that EIS and VCR funds can’t participate, so it won’t cover all bases. If the structure of the investment involves the EIS or VCR funds then they are not applicable and that number is quite high in Cambridge – for instance angel investors and a number of others.”

Cambridge investor Peter Cowley is expecting the Future Fund to be tweaked later this month (May 2020)
Cambridge investor Peter Cowley is expecting the Future Fund to be tweaked later this month (May 2020)

However, the Future Fund’s architecture may be in the process of changing. Peter Cowley, the Cambridge-based serial tech entrepreneur and angel investor, says the thinking “is changing day by day”.

“I’d agree with Andrew’s assessment today but not in a week or two when it is expected there will be tweaks which will include a greater level of detail,” said Mr Cowley, who is in contact with Future Fund officials. “As angels, we hope EIS and VCR programmes can be made co-investors – it makes a big difference if this becomes the case. There’s no guarantee it will change, but certainly there’s huge pressure to do so.”

Another investor, with a £100m fund, who has invested in a dozen companies in or around Cambridge, said of the Future Fund: “It sounds like a combination of politics and over-zealous lawyers have conspired to ensure it is of limited use to most of our portfolios, but it’s not an oversight. I’m optimistic more is to come, but it may be another couple of weeks.”

Martin Clapson, managing director at Price Bailey, has also heard the mood music.

“I’ve been told by the head office at the Confederation of British Industry – the CBI – that a lot of changes are coming in,” he said. “The feeling now is that a lot of hard work is needed to take us to the next level of support for UK businesses, so we expect some of the regulations will be relaxed and make life easier for businesses to claim the finance.”

“It may be that some Cambridge start-ups who are hesitant about the possibility of funding from the Future Fund could find solace in this week’s announcement that CBILS loans will be 100 per cent backed by the government up to £50,000 – though the industry is so busy fire-fighting it may not have noticed the fuss,” says Price Bailey partner Chand Chudasama.

“Most managers of investment funds aren’t aware of the Future Fund – I’d say six out of 10 of them,” Mr Chudasama said. “Their horizon is four or five weeks ahead. These institutions are fire-fighting, and that’s just the investment sector.”

The fact is that the gaps into which companies in the UK can fall in this pandemic are now narrowing, and for some Cambridge companies the prospect of an easy process for CBILS applications up to £50,000 makes a positive difference. The hope must now be that Chancellor Rishi Sunak finds a way to include EIS and VCR investments into the Future Fund’smatch-funding ideology – and soon.

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