Questions have been raised about whether the government’s £500m future fund will help technology businesses with little history of raising finance.
The future fund offers convertible loans ranging from £125,000 to £5m from the government, subject to at least equal match funding from private investors.
Firms must have previously raised at least £250,000 in equity investment from third-party investors in the past five years.
But David Hough, partner for tax and advisory firm Blick Rothenberg, has argued that it is a tough time to find investment and it would be more attractive if existing seed enterprise investment scheme reliefs were expanded.
“Convertible loans partially protect the taxpayer as the government retains an equity interest in start-up businesses that cannot repay the loans within the 36 month term, however eligibility rules for the future fund scheme mean that accessing funding will be difficult for many technology businesses”, Hough said.
“Companies need to obtain funding from private investors and have a history of raising finance from third parties in order for the government to match the amount raised under the terms of the future fund.
“For many private investors, themselves feeling the impact of economic uncertainty, they may be feeling that now is not necessarily the right time to take on additional risk.
“In order to incentivise investment from private individuals, the Government should look to expand existing tax reliefs, such as the SEIS.”
Blick Rothenberg suggests the SEIS rules on the size and age of the firm could be relaxed.
Currently, firms applying for SEIS must have traded for less than two years and fewer than 25 employees.