Yachts to yogurt: in the UK government’s venture capital portfolio

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The UK government venture capital fund has invested in a Netflix-style streaming service for jazz, an alcohol tea maker, a yogurt bar business, a talent agency for social media influencers and a social media influencer service. yacht charter, the Financial Times can reveal.

These are among 200 companies identified as having filed the latest documents for the Future Fund, a program through which the government has invested £ 1.1bn in 1,190 companies as part of its efforts to support the economy. Britain during the pandemic.

The government keeps Future Fund investments confidential, only revealing them when they are ready for publication elsewhere. He resisted repeated attempts to force publication.

Chancellor Rishi Sunak said it would help “bring revolutionary products like new drugs and green technologies to market”. The Treasury has boasted of supporting Vaccitech, a start-up involved in the Oxford / AstraZeneca vaccine.

But only about one in seven of all the companies identified presents their industry as pharmaceutical or scientific work. The Financial Times has identified a crypto-focused bank, a TV series production company, and a podcast network. Mina, beneficiary of an investment from the Future Fund which simplifies the request for tax breaks, announces that dealing with the Treasury “can be a nightmare”.

The Future Fund’s investment portfolio is administered by the state-backed British Business Bank at arm’s length from ministers – and is expected to generate profits.

Rob Jolly, Managing Director of Onto, an electric car subscription service, said: “We’ve increased our value by an order of magnitude, so hopefully they keep us. If at some point we do an IPO, which we hope to do, there should be a decent windfall for the taxpayer. ”

However, the fund can still cause political controversy. Upon launch, Sunak said the fund “will enable innovative companies from all over the UK to access the finance they need to grow”. But about a quarter of the companies now identified, including companies disclosed elsewhere, are headquartered within two miles of Whitehall. Just under half are within five miles.

FT’s analysis estimated that 87 percent of directors of known participating companies were men. One in three women does not have female directors. The Treasury said: “Almost 80% of the funding has been provided to mixed management teams. The government did not make individual investment decisions.

The Future Fund was intended to help businesses when sources of venture capital for start-ups froze at the onset of the pandemic. Participating companies have received three-year convertible loans – debt that the government can convert into shares when companies raise new investments.

The government has not done business due diligence. It would only invest if the proposal met a set of criteria and if an independent external investor agreed to the same conditions. The program was open for applications from May 2020 until the end of January 2021. The Treasury initially allocated £ 250m for the program, but allowed it to expand to over £ 1bn.

Ministers may find it difficult to defend certain failing investments, even if the portfolio is profitable overall. Arthronica, a medical research start-up, went into liquidation last month. She was joined last week by Cleaning Club, a mail order detergent company.

Insolvency records show Future Fund owed £ 250,000 by Isotek Microwave, £ 920,000 by UserReplay, £ 795,000 by Catapult Ventures, £ 1.3m by Ms Wordsmith and £ 2m by Roli – from current companies administration, in liquidation or having been restructured without loans converting into equity.

The founders praised the speed of the rollout, in particular, for helping them. Romanie Thomas, managing director of Juggle, an app for hiring gig economy workers, said it took “less than eight weeks from writing the bid to getting the money in the bank.” Many private rounds don’t go so quickly.

A mobile phone displaying the British Business Bank website

The Future Fund’s investment portfolio is administered by the state-backed British Business Bank © Charlie Bibby / FT

Most of the 1,190 companies involved in the scheme, including almost all of the 200 newly identified by the FT, hold unconverted loans. The government released the names of just 158 ​​companies whose debt had already been converted to stock – and would be published in stock lists.

The 158 were the fastest able to raise additional private funding and tend to be larger companies than the 200 companies identified by the FT that have yet to convert. “If we have a UK Google, it’s in the early converters,” a Treasury official told FT.

Companies analyzed by the FT have shown shadows of older attempts to diversify the UK start-up scene. Universities are shareholders of 18% of the companies supported outside London, a result of years of encouraging spin-offs. Around 10 per cent of non-London businesses are already partly owned by state-funded regional development entities.

The Future Fund will create new questions for ministers. Firms unable to raise equity within three years may be asked to repay the loan with an 8 percent interest rate, plus a 100 percent “redemption premium”.

The British Business Bank said: “The purpose of the convertible loan is to provide a gateway to a company’s next round of equity financing, where the loan is then converted into equity. . . Like the term. . . is three years, there is a considerable amount of time to raise additional capital.

A senior official told the FT they expected around half of companies to convert. Those who cannot find new investors may be forced to repay, which could force them into insolvency if the government does not give in. “We would not be interested in owning shares in companies that have gone nowhere in three years,” the senior official told the FT.

Some companies who believe they will not be able to raise new investment fear the British Business Bank will apply these harsh terms if they attempt to restructure. A general manager described the loan as having become a “poison pill”.

Some warnings about potential future issues with the portfolio have emerged. To protect taxpayers, external investors who matched government money had to be “unrelated” to the business when the loan was issued – not immediately before.

In some cases, this definition appears to have been broadened. Isotek Microwave, an electronics company, has been put into receivership owing £ 250,000 to the Future Fund. The administrative process revealed that the £ 250,000 in matching funding came from an investor identified as Professor JD Rhodes.

Rhodes is the founder of Isotek, and his family owned 52% of the company, of which he remained a director. He was listed as a person with significant control until last year. Rhodes said: “I didn’t know how they were going to decide.” The British Business Bank said there had been no breach of the rules in the case.

There are also concerns that the program may have attracted businesses that could not go elsewhere. Roli, a music equipment company, suffered a loss of £ 33million in 2019. Documents report that she had tried to convince “hundreds” of investors to give her significant support before the pandemic – when she accessed the Future Fund for £ 2million. The taxpayer lost this loan plus £ 2.5million in back taxes as part of a restructuring. The company did not respond to a request for comment.

Some companies have also raised concerns about oversight by the British Business Bank. It has 10 employees overseeing the portfolio, although this number is growing.

Fund beneficiaries

The Yaar Bar is a “Nordic yogurt bar”. The Trésor supports “the thick, creamy taste of yogurt with the consistency and texture of cheesecake”.

Jazzed offers a text, video and sound experience that he hopes will be an immersive offering for fans of the genre.

The podcast network Auddy has published podcasts on real crime, sports and the medium of podcasting itself.

Kyra is a “Generation Z media company” claiming to represent some of the “most influential online creators” and reach 133 million young people every month.

Borrow a boat is a rental or charter company for yachts and boats. Like Airbnb, it allows customers to rent their own craft. The nautical company plans to float in 2022.

Clear score is owned by a Jersey-based company. The credit rating business was licensed as a UK-based company that had incorporated overseas simply to take advantage of a foreign accelerator program.


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