British taxpayers have become shareholders in a gym studio for the face, a kombucha producer and a cannabis oil company as part of a scheme set up during the coronavirus pandemic to help small businesses.
One of a number of government-backed initiatives, the Future Fund scheme was launched by former chancellor Rishi Sunak in May 2020 to support innovative start-ups during the pandemic. Businesses were offered loans that would switch to equity when they next raised money.
The latest fund data show that taxpayers now own stakes in more than a third of the 1,190 companies that took out loans worth £1.14bn in total.
Among the businesses are Avida Global, a producer of medicinal cannabis oils; Flower of Life, which manufactures organic kombucha; and Facegym, a studio providing facial fitness exercises.
The data come after the Financial Times in June revealed that taxpayers held a stake in Killing Kittens, a sex party organiser that turned to the Future Fund as Covid-19 forced it to cancel events.
Known for its exclusive and hedonistic parties, Killing Kittens was founded in 2005 by Emma Sayle, a schoolmate of the Duchess of Cambridge. The events company was valued at about £15mn in its latest fundraising, which Sayle said boosted the value of the government’s investment.
In the three months to the end of June, loans to 65 companies converted into equity, according to the British Business Bank, which oversees the scheme.
The government has amassed equity holdings in 400 businesses in the fund, the Bank said. These range from the Black Sheep Coffee chain to Hybrid Air Vehicles, a company attempting to bring back airships, whose early backers included Iron Maiden singer Bruce Dickinson.
But concerns have been raised over the viability of some of the groups in the fund, with the latest data showing that 54 companies have fallen into administration.
Keith Morgan, former boss of the British Business Bank, sounded the alarm in 2020 before the Future Fund was launched, warning that it could lead to fraud and cost taxpayers.
Conservative MP Kevin Hollinrake, who sits on the House of Commons Treasury select committee, said: “By their very nature, these investments are speculative. As any investor knows, it’s a numbers game. Some will succeed and others will not. That’s the nature of start-ups.”
Ken Cooper, a managing director of the British Business Bank, said the fund “was created to ensure a flow of capital, at the height of the pandemic, to companies that would otherwise have been unable to access government support schemes, while ensuring long-term value for the UK taxpayer”.
“We are pleased to see so many of those companies now going on to raise further private sector capital, which will allow the Future Fund to benefit from their continued growth,” he added.
Flower of Life said Covid had affected its “growth trajectory” and that its latest fundraising, which would leave taxpayers with a stake, was expected to close in the next few days.
Avida Global and Facegym did not immediately respond to a request for comment.
The British Business Bank added: “Given the convertible loans are designed to convert into equity over three years, it is encouraging that a third of Future Fund companies have now gone on to raise further private sector capital.
“As venture capital is long-term term investment, it is too early to give an indication of the overall Future Fund performance. However, due to the size of the portfolio, and the commercial nature of the third-party investors, we expect it to track the market over time.”