Dozens of small businesses that received taxpayer-funded start-up loans under Rishi Sunak’s pandemic-era Future Fund programme face being wound up, adding to a growing pile of bad investments under the scheme.
The Future Fund is a £1.14bn portfolio of investments that was set up by the former Conservative prime minister when he was chancellor and is managed by the British Business Bank.
It lent to 1,190 mainly early-stage companies between May 2020 and July 2021 as part of the UK government’s Covid-19 stimulus spending.
Under the terms of the funding, businesses were required to raise a funding round that included a company valuation within three years, or repay the full amount of the loan as well as a 100 per cent premium and any accrued interest.
Court records show that the BBB has filed winding-up petitions for 27 companies in the Future Fund portfolio since the beginning of the year, ahead of a July deadline for final redemptions on the three-year convertible loans.
One of the companies, now in administration, is the investment app Gather, which is partially owned by Arsenal football star Jorginho and owes the BBB £3.6mn on its convertible loan.
Gather’s administrator said in a report that its owners “did not appreciate” that BBB would expect repayment, and assumed the loan would convert automatically to equity after three years.
The company also owed £120,000 to Soho House, the private members’ club, whose annual festival it launched at last year.
Gather owed £6.1mn in total and has been offered £400,000 for the business assets, which after tax due is paid, would leave six pence in the pound for unsecured creditors such as the BBB and Soho House.
Gather did not respond to a request for comment.
Another 20 of the companies have been placed into liquidation, Companies House records show.
While some of the businesses backed by the fund have proven to be promising tech companies, it has come under scrutiny for funding more unusual enterprises including a cannabis products company and a sex party planner.
The scheme, set up in 2020, matched funding up to £5mn raised by companies from third-party investors. It provided funding to any businesses that met the conditions of the scheme.
The BBB in January 2023 offered more than 500 companies the opportunity to extend their loans by up to two years subject to support from other investors and customer due diligence, according to a person familiar with the matter.
The person added that a minority of applicants had been unsuccessful, while others in the portfolio had breached the terms of their loan.
At the end of June, 152 loans worth £131mn were still outstanding, the bulk of which have been extended, while 258 businesses in the portfolio have gone insolvent at a cost of £226mn to the taxpayer.
BBB has to date converted roughly 711 loans into equity on the back of £708mn in investment and “exited” 71 companies, usually after a start-up had been bought and the loan repaid.
The BBB reported a £122mn post-tax loss in its latest financial year, the company said this month, as falling start-up and tech valuations dragged on the state-owned organisation’s financial performance.
The figure did not include the Future Fund portfolio, which sits on the Department for Business and Trade’s balance sheet.
The Financial Times reported in 2022 that a BBB non-executive director had said “most” of the companies backed by the Future Fund had “limited chance of growth to a sufficient scale for success” and were likely to become “zombie companies”.
The BBB said: “We have a duty to protect the interests of taxpayers. The bank will take steps to wind up any company it believes is insolvent or is in breach of the loan agreement.”
