New £375m Future Fund from the UK Government will do little to level up

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A new £375m fund from the UK Government to back the growth of high-tech and research and development focused firms will do little to support its levelling up agenda with its investment criteria loaded in favour of London and the south-east of England says a leading enterprise academic.

The Treasury has launched its successor to its now closed £1bn Future Fund, with its Future Fund:Breakthrough. The fund will see the UK Government investing 30% of equity into funding rounds of at least £30m.

Recipients of the fund will also have needed to have raised at least £5m in previous equity rounds in the last five years. Moreover, firms must be committed to having 20% of employees carrying out R&D for at least three years from the date of investment, as well as spending on average 10% of its cost base on R&D over the last three years.

The previous fund, the Future Fund, saw the lion’s share (around 72% on value) of debt to equity funding going into firms in London and south-east. The deal flow in Wales accounted for less than 2% of the total on value.

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Professor Dylan Jones-Evans of the University of South Wales said outside of London and the south-east a far lesser number of tech firms would be entitled to backing from the Future Fund:Breakthrough. He pointed to the fact that in Wales in the last five years only a handful of tech firms have raised £5m in equity with funding rounds in access of £30m even rarer.

Under the Future Fund firms had to had raised £250,000 in a previous equity round. It provided funding up to £5m.

As part of its levelling up agenda, Prof Jones-Evans said the Treasury should have had set a less onerous criteria for its new fund for firms outside of London and the south-east where investment rounds of £30m and higher are more commonplace.

He added: “The access to finance review which I put together for the Welsh Government in 2013 showed the massive gap in venture capital funding between the poorer regions such as Wales and the more prosperous parts of the UK. Fast forward eight years, and it is extremely disappointing that this new venture fund again seems have taken no account of the regional differences in venture capital that exists across the UK.

“With Wales having smaller deals over the last few years due to the absence of a strong venture capital industry, it is not surprising that Welsh businesses received only 1.6% of the Future Fund. Whilst this could have been addressed in this new fund, it has actually gone the other way and is now insisting on a minimum investment round size of £30m with the recipient company having raised at least £5m of equity investment from third-party investors in previous funding rounds in the last five years.

“Given this, I very much doubt that this fund will have any significant effect on the Welsh economy and it seems designed to de-risk venture capital deals in London and the south-east rather than encouraging wealth creation across the rest of the UK as part of the UK Government’s levelling up agenda.”

The Treasury where asked if it had considered a different criteria for firms seeking funding outside of London and the south-east as part of its levelling up agenda. It was also asked if it has calculated how many firms in Wales could be funded under the new fund.

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Chancellor Rishi Sunak said:“Our Future Fund: Breakthrough scheme will enable innovative businesses in every corner of the UK to access the finance they need to scale up and bring their transformational technologies to market – all while creating high-skilled jobs and boosting the economy as part of our Plan for Jobs.

“Technology and innovation will be at the heart of our future economy which is why we are investing billions in R&D to help cement our status as a world-leader in this field.

“Above all, our investment will incentivise collaboration between our most ambitious entrepreneurs and private investors, helping to commercialise breakthrough products such as new medicines and green technologies that could change our lives for the better – all while creating high-skilled jobs that help boost the UK economy.”

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