Women & BAME Founders unlikely to benefit from ‘Future Fund’

Women and Black, Asian and Minority Ethnic (BAME) founders are unlikely to benefit from the Government’s £500 million ‘Future Fund’ which launches on 1st May 2020. Experts who support the startups ecosystem have pointed out that the clauses, which require startups to have raised over £250k in equity investment over the past five years and find at least equal match funding from private investors, before applying for convertible loans ranging from £125,000 to £5 million, automatically favour companies with Venture Capital backers. Beauhurst highlighted that just 27% (7,629) of the 28,499 ambitious startups they track are eligible.

Seed Legals highlighted the fact that “the package fails to understand that the vast majority of early-stage UK funding is powered by SEIS/EIS. The scheme, as it stands, is incompatible with SEIS/EIS.” It also points out that the repayment rate of the loans is at an extortionate rate; a 100% premium on top of an 8%+ interest rate. If not repaid, loans will convert to the most senior class of share at minimum 20% discount .

Diverse Founders are less likely to have raised at least £250K of funding

Writing in Medium, Francesca (Check) Warner, partner at Ada Ventures and CEO of Diversity VC, stated “the issue of a lack of diversity in the senior leadership teams of technology companies is well-documented. Suffice to say that diverse founders are less likely to have raised at least £250k of funding already, less likely to have ‘warm introductions’ and therefore less likely to have access to this funding.”

In their Change.org petition calling on the Chancellor to Align the Diversity Agenda & The Future Fund, Emma Sinclair and Hephzi Pemberton state that “when only 1% of VC funding in 2019 went to female founders, there is an urgent need to ensure that the UK funds innovations from a broader range of founders”.

Click here to sign the petition. 

The Future Fund heightens systemic barriers in the investment community

Deborah Okenla, Founder and CEO, YSYS, said “the Future Fund, by design, sadly only heightens systemic barriers that exist within the investment community which is dominated by privileged white males, and built upon nepotism and classism. 39% of London’s VC firms don’t have any women on their investment teams, while one in five UK VCs went to Oxford, Cambridge, Harvard or Stanford, according to Diversity VC.)

“This long-standing culture has given birth to statistics which highlight the exclusion of diverse founders: black female founders receive just 0.02% of venture funding in the US while less than 9% of senior leaders in tech are from BAME backgrounds.

“Diversity and inclusion needs to be intentional and not an afterthought. Given that, we suggest the Treasury or the British Business Bank develops a D&I Action Plan for the Future Fund, along with angels and VCs.”

What should be done?

Many organisations and individuals have outlined recommendations on how to improve the ‘Future Fund’ scheme. Most are systemic and include:

• ensuring that angel syndicates are included within the ‘eligible’ groups
• ensuring that VC funds and angel syndicates have signed the Investing in Women Code;
• reducing the historic equity raise from £250k to £100k;
• ensuring compatibility with SEIS / EIS ;
• defining matching funds as broadly as possible;
• reducing the match funding minimum from £125k to £50k;
• reducing the redemption premium to 20%.
• allowing startups to seek ‘pre-approval’ for matching
• engaging with diverse startup communities
• ensuring the Investment Committee judging panel is diverse

£750 million of support for R&D intensive SMEs

As well as the Future Fund the Government will also make available £750 million of targeted support available to the most R&D intensive small and medium size firms, via Innovate UK’s grants and loan scheme.

To achieve this, Innovate UK will accelerate £200 million of grant and loan payments for 2,500 existing Innovate UK partners on an opt-in basis. An extra £550m will also be made available to increase the support on offer for these existing partners. Further Innovate UK will offer £175,000 to around 1,200 firms not currently in receipt of Innovate UK funding.

The Government aims to make the first payments from this additional support package by mid-May. This package will build on existing commitments for innovative, high-growth firms such as the £2.5bn British Patient Capital fund, the upcoming £200m Life Sciences Investment Programme, revisions to R&D credits and other welcome commitments to increase public R&D spending to £22bn by 2024-25 announced in the 2020 Budget.