Loans for firms

How the government may end up with a stake in a sex-party company

The Future Fund may provide taxpayers with an eclectic portfolio

IN THE BALLROOM of a Georgian house in central London, five mattresses have been pushed together, and a pile of people are having sex on them. The orgy has been organised by Killing Kittens, a company that claims to throw “the world’s most exclusive, decadent and hedonistic parties”, and which has been offered a £170,000 ($213,000) loan from the government’s new Future Fund scheme. Unless paid off, the loan will convert into equity, giving the government a 1.47% stake. Emma Sayle, Killing Kittens’ chief executive, is careful to point out that taxpayers’ money will be spent not on orgies but on an app and a social network.

The prospect of the government owning a slice of an organiser of upmarket sex parties is one of the more surprising side-effects of the covid-19 pandemic. Rishi Sunak, the chancellor of the exchequer, launched the Future Fund in April to tackle a gap in previous offerings of financial help to firms. Since March around £45bn of government-backed loans—2% of GDP—have been extended to the private sector but the initial package was ill-suited to firms that are, in the jargon of venture capital, “pre-profit” or even “pre-revenue”. The Future Fund offers up to £5m in convertible loans for firms that meet its criteria if they raise the same amount of third-party cash. The need for matching funding ensures that decisions are still, ultimately, being made by investors rather than by civil servants. So far 429 companies have received a total of £420m.

The Treasury has declined to publish a full list of the recipients. But several of the firms that have raised capital through funding websites, such as Seedrs, a startup platform, have publicised their Future Fund loans. The names do not occupy the commanding heights of the economy to which politicians used to aspire. Aside from Killing Kittens they include Stem + Glory, a vegan restaurant, and Save Your Wardrobe, an app that allows users to digitise their closet.

Not everyone is happy. Darren Jones, the chair of the House of Commons Business Select Committee, has called for details of the firms the Treasury is backing. “We need to understand how the government is managing risk and be assured that money is being spent well,” he says. Ms Sayle criticises the targeting of firms that already have significant venture-capital funding. “It was made by VCs for only VCs to benefit, not startups or small investors.”

Jeff Lynn, the founder of Seedrs, warns that failures are an intrinsic part of startup culture and worries about bad headlines when investments go wrong, but he supports the government’s approach. “I would expect two or three in ten of any portfolio of startup investments to perform really well and the rest, less so.”

Whereas most of the government’s financial-support packages will cost taxpayers money, VCs expect the Future Fund to turn a profit as well as helping sustain the startup sector—a relatively bright spot in the British economy pre-crisis. But taxpayers may be surprised by some of their new relationships, and they are not the only ones. “I never envisaged Boris as a sleeping partner,” says Ms Sayle.■

This article appeared in the Britain section of the print edition under the headline "The joy of equity"