• The UK government will launch a £500 million co-investment fund for startups struggling to survive COVID-19.
  • Half that cash will be the government money issued via convertible notes, with the private sector expected to match funding on a deal-by-deal basis.
  • Business Insider reported in March that startup backers were seeking up to £300 million in rescue funds for early-stage startups.
  • Visit Business Insider’s homepage for more stories.

British venture-backed startups strapped for cash during the pandemic will get a helping hand from the government.

The Treasury has announced a £1 billion ($1.2 billion) bailout package targeted at startups and innovative small- and medium- sized business, to keep the UK’s tech and life sciences industries afloat as COVID-19 bites.

There are two parts to the bailout package.

The first is a co-investment fund called the Future Fund, which will make up to £500 million ($625 million) available to venture-backed early-stage startups.

The government has now rubber-stamped an initial £250 million ($300 million) of taxpayer cash for the Future Fund, with the private sector expected to make up the remaining half.

Business Insider first reported on this fund in March, when investors warned that thousands of startups could collapse thanks to the economic slowdown.

As expected, the Future Fund will be managed by the state-backed British Business Bank and will launch in May. The fund will offer eligible startups between £125,000 and £5 million via convertible notes, which will convert to shares on the startup’s next funding round. However, this funding must be matched by private backers.

In other words, this won’t just be government cash going into startups. It will however see the UK government taking stakes in a number of the UK’s fast-growing early-stage startups.

Sources indicated last week that it was unlikely that the government would continue to hold equity through later funding rounds. Instead, they said, it was probable that late-stage investors will be given the option to buy the government out.

According to a Treasury statement on Sunday, startups applying to the Future Fund will need to have raised £250,000 from private backers within the last five years in order to qualify. The Treasury has yet to publish all the criteria that startups will need to meet in order to apply.

The package doesn’t apply to the UK’s bigger “unicorn” startups, which are in separate discussions with the government on accessing the Treasury’s financial schemes for businesses. 12 larger-stage tech firms wrote to the government earlier in April asking for financial help and warning that the tech sector was “at risk” during the COVID-19 pandemic. Those discussions are still ongoing.

The remaining £750 million funding tranche of the £1 billion package is targeted at small-to-medium enterprises (SMEs) focused on research and development, and thus likely to be burning cash. That funding will be available through the UK’s innovation agency, Innovate UK.

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