(Bloomberg) — The UK government has lost close to £300 million ($379 million) on the £1.14 billion portfolio of start-up investments it made during the pandemic to prop up struggling young businesses.
Department for Business, Energy and Industrial Strategy accounts show the Future Fund, a lifeboat for start-ups that the Treasury described in 2020 as “the brainchild of Rishi Sunak,” the prime minister, had lost £289 million on a fair value basis by the end of March this year.
The fund was originally given £250 million of taxpayer money to invest into “innovative companies facing financial difficulties due to the coronavirus outbreak.”
It was later expanded and a total of £1.14 billion was handed to an eclectic group of 1,191 companies, including a lower league football club, a sex party firm and a cannabis products company, before the program was closed in early 2021.
Sunak’s wife, Akshata Murty, was joint owner though a venture capital business of several companies that received Future Fund support – some of which went into administration.
The fund was part of a package of emergency business support measures taken at the start the pandemic to keep viable but cash-strapped firms afloat. In total £80 billion of state-backed money was provided, largely through the Bounce Back Loan Scheme for small businesses.
Mounting Losses
The government claimed the loans protected as many as 2.9 million jobs but the latest BEIS accounts show it expects to lose £11.3 billion in total – £9.7 billion on the BBLS program alone. Valuation losses on the Future Fund are separate.
Sunak drew on his experience as a banker and venture capitalist to help design the Future Fund just weeks after becoming chancellor in February 2020.
Under the terms of the scheme, taxpayer money was invested through convertible loans of between £125,000 and £5 million, with interest charged at 8%. The funds had to be matched by private investors.
The BEIS figures, published at the end of October, show that the Future Fund was worth just £851 million in March, having lost a quarter of its value and £185 million in the year to March alone.
Potential taxpayer losses are likely have increased since March as higher borrowing costs and restricted access to credit push many smaller companies into insolvency.
Separate figures from the British Business Bank, which administers the Future Fund, show that 146 of the firms had gone bust by the end of September – 33 more than in March. As of Sept. 30, a total of 55 investments had been cashed in, 329 loans were outstanding and 661 had converted to equity.
Under the program terms, loans convert when a new external investment is made, which suggests the remaining companies are the least investible.
The Department for Business and Trade, which was spun out of BEIS and is responsible for the business support measures, declined to comment. It uses an external valuer to establish the fair value of the portfolio.
©2023 Bloomberg L.P.
