The government has announced a £1.25bn ($1.53bn) package of support for startups and tech businesses struggling as a result of the COVID-19 pandemic.
The Treasury said late on Sunday it was launching two new facilities aimed at helping innovate businesses through the crisis.
A new £500m investment fund will be launched for high-growth startups, while £750m of grants and loans for startups doing research and development will also be handed out.
“The UK is a world leader in innovation and at this hugely challenging time, we know that young, fast-growing firms require tailored support to see them through,” UK business secretary Alok Sharma said in a statement sent to press.
“This wide-ranging package delivers important help that will protect some of the most dynamic sectors of our economy.”
The new £500m ‘Future Fund’ is made up of £250m from the government that will be matched by funding from venture capitalists. The fund will write loans of between £125,000 and £5m that will convert into stock if they cannot be paid back.
Firms must be unlisted and registered in the UK to qualify and must have raised at least £250,000 in funding prior to the coronavirus lockdown. The ‘Future Fund’ will aim to be up and running by May.
The £750m of R&D loans and grants will be handled by Innovate UK, the national innovation agency, which will accelerate and extend existing support for 2,500 startups. 1,200 companies not currently supported by Innovate UK will also be offered cash.
“Britain is a global leader when it comes to innovation,” Chancellor Rishi Sunak said in a statement. “Our start-ups and businesses driving research and development are one of our great economic strengths, and will help power our growth out of the coronavirus crisis.”
Pressure had been growing in recent weeks for the government to give support to the UK’s tech sector.
Billions of pounds of coronavirus support for businesses of all sizes have been announced by the government. However, all the programmes required companies to be profitable as of December 2019 to qualify for help.
That left many tech startups ineligible. Most are either too early stage to have turned a profit, or else are deliberately loss-making as they plough resources into fast growth rather than focus on profitability.
Brent Hoberman, the founder of Lastminute.com and now a prominent tech investor, said the UK was “in very real danger of losing a generation of companies” in an opinion piece in the Financial Times last month.
A campaign group called “Save Our Startups” was set up in recent weeks and last week larger tech businesses, including Deliveroo and energy company Bulb, published an open letter to the Treasury pleading for support.
Critics say venture capitalists should support these companies rather than the state, given the risk involved in backing startups. Most early stage tech businesses ultimately fail even in good times.
Robin Klein, himself a prominent London investor, wrote in an opinion piece for tech website Sifted: “Venture capital funds in the UK have more than enough capital and the incentives to fund the best companies.”
UK venture capitalists raised $5.2bn in 2019 and have raised billions more already this year. Last week, London-based Index Ventures said it had raised a new $2bn fund to back startups.
Digital, Culture, Media and Sport Minister Oliver Dowden said on Sunday night: “We are the tech and creative capital of Europe, and it’s crucial to maintain our place.
“This funding will protect high growth businesses and enable the unicorns of tomorrow to thrive so that tech is in pole position to drive our post COVID recovery.”
Stephen Jones, chief executive of banking industry group UK Finance, told MPs last week that startups were “critical to our future”.
“Many of them are at the cutting edge of biotechnology, financial technology,” Jones told the Treasury Select Committee. “They’re a really important part of why the UK is such a vibrant place to be from a technology perspective.”