Sara Green Brodersen, chief executive of enterprise software startup Canaree, is still feeling the effects of the coronavirus.
“I still don’t have a sense of smell, my taste is still distorted,” she tells Business Insider over a Zoom call.
Brodersen was struck by the virus in March, shortly after the company found its fundraising talks with prospective investors suddenly drying up.
“I had a fever for seven days,” she continues. “I was in bed for seven days, my cofounders ran the company. I could check my emails, but I wasn’t productive.”
The company, with its product still in beta, had been in “serious” discussions with new backers for a larger round of funding but as it became clear the epidemic was in fact a pandemic, “everyone pressed the pause button,” according to Brodersen.
Would these investors have backed Canaree if a pandemic hadn’t put everything on ice? “You can’t say until a round is closed,” says Brodersen. “But it was very clear the conversations changed.”
Three months on, Canaree is one of the few startup companies to have successfully raised money via the government’s Future Fund. The company, which aims to help peer startups with their financial modeling, has now raised a total of £500,000 ($624,000).
On March 18, Business Insider broke the news that early-stage investors such as Lastminute.com cofounder Brent Hoberman and tech lobby group COADEC were pitching the government to launch an emergency tranche of funding for startups such as Canaree.
Through March, investors — although outwardly claiming to still be investing — essentially halted new deals and instead focused on what one insider described as “triaging” their existing startup portfolio.
Promising firms in the portfolio that needed more cash to survive took priority over striking new deals. It was founders like Brodersen, Hoberman and co. argued, who needed government help.
The Treasury announced the Future Fund one month later, with an initial tranche of £250 million ($311 million) being made available to distressed early-stage firms.
To qualify for the Future Fund, startups must be venture-backed and have raised at least £250,000 ($310,000) in equity over the last five years. At least half of the company’s employees or revenue must be UK based and startups must already have obtained match funding from private investors when applying to the fund.
The fund opened for applications on May 20 and by this time founders like Brodersen had been trying to establish a path forward for several months.
Amid panic about what the fund would look like and whether there would be enough cash to go around, Brodersen and her cofounders “participated in as many webinars” about the fund as they could before it opened for applications.
Her first stroke of good fortune was that Canaree’s existing backers, such as Little Venice Partners, were willing to put up match funding. “They were amazingly supportive in that sense,” Brodersen says of her backers.
“Then it was all about getting the paperwork together and being ready to apply because they talked about a pool of money and when that was gone, it was gone,” she continues. “It was quite a crazy week … We didn’t know when [the fund] would open for application, they just said some time from May so from May 1 we needed to be ready.”
Canaree then engaged lawyers who could structure its application, another requirement from the fund. After this point, Brodersen says, filling out the paperwork wasn’t complicated, but it was time-consuming.
“Be well-prepared, don’t underestimate how much time it takes,” she says. “The problem is finding the first part of the funding. The Future Fund isn’t difficult if you get other private investors on board with investing at this stage.” And provided your private backers agree to invest without SEIS/EIS relief, another condition of the fund and one that many founders feel is too restrictive.
Canaree was quick to be among the first to apply and, according to Brodersen, was the 47th applicant.
Only 155 companies have successfully landed rescue cash from the Future Fund so far, and Brodersen knows that others will slip through the cracks thanks to its narrow criteria.
“We were fortunate that we fit,” she says. “I’m grateful the government has stepped in or otherwise we’d have had to run the company in a different way, really tightened our belts a lot more. I do hear criticism from founders who can’t find investors who won’t [forgo] EIS or SEIS, or haven’t raised £250,000 first.”
The Future Fund is part of a broader set of financial packages intended to rescue smaller businesses during the coronavirus pandemic.
As of June 28, the government had already exceeded the original fund of £250 million ($311 million), approving over £320 million ($400 million) in convertible loans to 322 startups.
Following the extension, sources with knowledge of the matter indicated that there will be no formal cap on the Future Fund’s size, or the number of startups it will support.
While the fund has allayed demands for a startup-focused rescue package, business leaders expressed reservations about the terms of the scheme.
Speaking to Business Insider in May, chief executive of Lantum Melissa Morris voiced concerns about the Fund, which she believed could disadvantage founders from minority backgrounds.
“[The Future Fund] will widen the gap between the founders who can attract capital, and those who can’t,” said Morris at the time. “It’s not always about how successful you are, it’s genuinely about discrimination.”
She added: “Will this end up being the new normal, will it widen the gap? I don’t know how they’ll balance it … I’m not sure if it’s something they’ll be able to address.”
In response to these concerns, the government released diversity data last month. This provided a broad overview of the gender, ethnicity, and location of the successful applications, but some founders and investors argue that the data needs more granularity to reveal the true picture of the Future Fund’s diversity.
The fund was also initially criticized for excluding startups with a non-UK-based parent company.
For many founders wishing to participate in prestigious overseas accelerators, such as Y Combinator in the US, setting up a parent company in that country is a prerequisite for taking part.
On May, 36 UK founders and CEOs wrote to the Chancellor to express these concerns and, at the end of June, the government responded by extending the scheme to include startups with an overseas parent company that “contribute significantly to the UK economy”.
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