The Scottish Government has announced a new fund as part of a £38m package aiming to support high growth companies who have been demonstrably affected by COVID-19. The Early Stage Growth Challenge Fund will provide a mix of grant and investment funding up to a maximum of £300,000 per company and will be open for applications on 20 July 2020.
The Fund will be managed by the Scottish Investment Bank, the investment arm of Scottish Enterprise, and is aimed at providing a funding bridge to get eligible companies to their next investment round. Applications for the Fund are competitive so even if a company meets the eligibility criteria set out below, it does not guarantee it will receive funding (this differentiates the Fund from the UK Government's Future Fund).
As well as being a private company based in Scotland, to be eligible applicants must:
· have been incorporated between 31 December 2009 and 31 December 2019;
· have between 2 and 49 full time equivalent employees, 80% of which must be based in Scotland;
· be able to show that COVID-19 has had a clear negative impact on revenues or costs;
· have a turnover or balance sheet value less than €10m;
· be an early stage innovative company with high growth potential - to show innovation the applicant must have registered a technology right or received an R&D grant in the last 24 months; and
· have raised external equity finance in the last 24 months or be aiming to in the next 12 months (this cannot be from founders, family friends or crowd funding).
There are a limited number of ways the funds can be used. A full list can be found here.
The funding is in the form of a non-negotiable convertible loan, with an element of grant attached. The grant can represent no more than 20% of the total funding per company and need not be repaid. The Scottish Investment Bank can elect to either ask for the convertible loan to be repaid or converted into equity in the investee company. Full terms of the funding can be found in the term sheet here.
Applications for the Fund close on 31 July 2020. If any companies wish to discuss applying to the Fund, please don’t hesitate to get in touch with Danny Lee or Niall Mackle in our Edinburgh Corporate Finance team.
“We believe this additional funding from the Scottish Government will help remove the financial obstacles created by COVID-19 that threaten their growth. With our backing, we hope our early stage companies will fulfil their potential and bolster Scotland’s economic recovery while having a positive impact on businesses and individuals internationally.”