An independent economic evaluation of the Future Fund has found that it provided a lifeline to businesses during the pandemic, with 48% of recipients saying their company would have been likely to close without its support.

The evaluation also found that the scheme met its short-term objectives of increasing the availability of equity finance to businesses affected by the pandemic and delivering finance quickly to recipients. The British Business Bank commissioned RSM UK Consulting to undertake an early assessment economic evaluation of the Future Fund. The report focuses on lessons learnt from a policy design, delivery and early economic impact perspective.

Ken Cooper, Managing Director, Venture Solutions, British Business Bank said: “The Future Fund was created at a time of great uncertainty in the venture capital markets and when the country was learning new ways of working through a pandemic. Against that backdrop, seeing the positive outcomes reflected in this independent evaluation is fantastic. We supported over a thousand companies many of which have since gone on to gain subsequent investment where they might not otherwise have survived.”

Business Secretary Grant Shapps said: “COVID-19 presented monumental challenges for British businesses which is why it was so important that the government stepped in during their time of need.”

“Whether it was supporting firms to stay open or equipping them to access capital and grow, today’s findings highlight the vital role of the Future Fund in keeping our most innovative businesses ticking along during a challenging time. My priority is ensuring we continue to champion the interests of British firms to help unlock economic growth right across the country.”

The Future Fund deployed £1.14bn of funding through Convertible Loan Agreements (CLAs) to 1,190 equity-backed companies, with at least equal match funding from private investors. Unlike equity investment, there wasn’t a requirement under the CLA to value the company at a time when company valuations were significantly impacted by Covid-19. The CLA was designed as bridge financing due to converting into equity at the next funding round when an equity value can be negotiated between companies and investors. The evaluation finds the majority of lead match-fund investors preferred the CLA structure over equity co-investment.

The scheme was deployed at pace and was open to applications from May 2020 to January 2021. The programme was set up within two months of the pandemic emerging in the UK. This enabled vital financial support to reach early-stage companies quickly at a time when there had been a significant reduction in the availability of equity finance. 

Reduced risk of business closures and damage to long-term company prospects

The Covid-19 pandemic led to an unprecedented economic situation across the UK in early 2020, with the number of equity deals falling 32% in Q1 2020 from Q4 2019. The report states that 62% of Future Fund recipients reported they probably or definitely would not have been able to obtain similar funding from elsewhere. The report also found that only 26% of respondent companies that received Future Fund support said they could have raised similar equity finance in its absence. In addition, only 36% of investors would have invested without the Future Fund. Collectively, the 1,190 companies funded by the Future Fund employed 28,000 people.

Providing a lifeline to innovative UK businesses

The Future Fund also provided a lifeline to innovative UK businesses facing the prospect of long-term damage. Companies supported by the Future Fund were relatively small and at an early stage of their development. Of the 1,190 companies that received funding, 41% were technology / IP-based businesses. Most recipients (85%) reported they have undertaken research and development, developed new or modified goods/services after receiving funding (67%) or expanded digital technologies (65%), supporting the finding that funding went to innovative companies. Initial results suggest the Future Fund enabled each recipient to invest an extra £122k to support long-term business development.

A clear and quick application process

The clear and quick process to access the Future Fund was critical in its success the report finds, with nearly half (46%) of recipients saying the speed of funding attracted them to apply. The average total time between the start of the application process and funding being approved was 17 days. The application process was also deemed to be straightforward for investors - 89% of investors either agreed or strongly agreed that the overall application process was clearly explained.

Supporting diverse management teams

Many of the companies that received support from the Future Fund showed a considerable degree of ethnic and gender diversity within the management team. More than half (52%) of firms had at least one management team member from a Black, Asian or other Ethnic Minority backgrounds, with 5% of teams solely from Black, Asian or other Ethnic Minority backgrounds. More than two-thirds (69%) of companies had at least one female management team member, with 42% of firms also having at least one female founder. This level of diversity was likely due to the broad eligibility criteria and automation of application.

This early assessment is part of a multi-year evaluation of the Future Fund. Future stages of the evaluation will focus on measuring the programme's impact in more detail.

Delivering large-scale investment relative to similar European schemes

The report finds that next to comparable schemes in Europe (the Business Angel and Syndication Loan scheme in Denmark, the Tech Bridge scheme in France, and TOPPS in the Netherlands), the Future Fund provided greater funding to more businesses.

In comparison to Denmark’s two schemes, the country with the next largest scheme, the Future Fund delivered five times the amount of funding to three times as many companies. Reviews of similar equity finance programmes from other European countries’ development banks suggest the Future Fund’s broad eligibility criteria and government backing helped deliver a large-scale finance programme.