In the small hours of a warm August night in 2022, staff at London-based festival tickets business Pollen received a lengthy email confirming their worst fears. Just three months after a $150m fundraising round that valued the company at $800m, Pollen had gone bankrupt.
It was a dramatic implosion. Some of the biggest names in venture capital had poured cash into the company, believing it could become a giant of the money-spinning live events industry. Their dream evaporated when the events Pollen sold tickets for had to be cancelled during the Covid-19 pandemic. Within weeks, another side to the story began to emerge.
Former staff told of its founders – young entrepreneur brothers Callum and Liam Negus-Fancey – spending hundreds of thousands of pounds on parties where drugs were a common feature. One former employee said they remembered colleagues knocking back shots in the office on a weekday morning.
A spokesperson for Pollen countered that these tales were “grossly exaggerated”, and stressed that the pandemic, rather than the parties, were what capsized Pollen.
But this company collapse attracted particular scrutiny because it had been funded not just by venture capital, but also by the taxpayer, courtesy of a £5m loan from Rishi Sunak’s Future Fund.
Launched in April 2020 when the prime minister was chancellor, the fund was designed to help promising startup businesses ride out the pandemic. It was administered by the British Business Bank (BBB), the UK state development vehicle designed to increase the flow of lending to growing companies.
Under the scheme, the BBB would lend firms between £125,000 and £5m, matching parallel investments from private investors, with the loans converting into shares when the company next raised capital.
By January 2021, Sunak told the House of Commons that the fund had ridden to the rescue of 1,000 of Britain’s “fastest-growing startup companies”. That upbeat assessment belied a history of serious misgivings behind the scenes.
In May 2020, shortly after the fund was created, the BBB chief executive, Keith Morgan, wrote a “reservation notice” to ministers warning of concerns that the scheme would only attract “second tier” companies that could not attract investment from elsewhere and that achieving value for money for the taxpayer was “highly uncertain”. If the BBB were to go ahead with it, he said, it would need to be expressly instructed to do so by ministers.
Board meeting minutes, leaked last year, revealed that the BBB’s non-executive director Dharmash Mistry warned that the fund risked creating “zombie businesses” kept alive artificially by taxpayers’ cash. New data obtained by the Observer suggests that he was right to be concerned.
Many of the fund’s loan recipients were neither startups nor fast-growing. Some had connections to Sunak and the Conservative party, while others had wealthy investors, such as the Duke of Westminster or EasyGroup tycoon Stelios Haji-Ioannou. Still more simply proved to be bad bets, going bust and leaving the taxpayer on the hook for millions.
A freedom of information request by the Observer to the BBB reveals that of the £1.14bn ploughed into Future Fund companies, nearly £90m had been lost as of 13 February. The data shows that 92 companies received a total of £78.4m but went bust before the loans could convert into an equity stake. A further 12 loans, worth £11.3m, did convert into a shareholding, but the company in question went into administration afterwards.
These 12 firms included Pollen’s parent company, Streetteam Software, whose founder, Callum Negus-Fancey, was also a non-executive director of another loan recipient that went bust, a funeral services comparison site called Beyond.Life.
The data shows that 107 Future Fund investments – about 10% of the total – have gone bankrupt so far. The BBB said it did not expect any funds to be recovered.
Sunak had said the fund would target “early-stage” companies that were “fast-growing”. Yet 29 of those that have gone bankrupt were incorporated at least a decade before the government put any money into them, and often displayed little or no growth.
The failures include three businesses that counted Akshata Murty, Sunak’s multimillionaire wife, among their investors. Upmarket furniture business The New Craftsmen collapsed last November and failed to pay back £300,000 of lending, the Guardian revealed earlier this year. Murty’s investment business, Catamaran Ventures, was among the shareholders that lost their equity.
Another Murty investment, Mrs Wordsmith, a game-based literacy firm, had a £1.3m loan from the Future Fund but collapsed in March 2021, owing £16.3m.
Gym chain Digme Fitness, in which Murty held shares personally and was a director, fell into administration in 2021 with £2.23m of debt including £415,000 to HM Revenue and Customs. It had received furlough payments of up to £630,000.
The Observer understands the Future Fund has an “economic interest” in a new business called Digme Digital, which was created via a “pre-pack” administration that allowed Digme to continue trading while shedding its debts. No money is understood to have changed hands: the fund was given a share as a “goodwill gesture”.
A No 10 spokesperson has previously said Murty’s investments were “based on her desire to support the British craft industry”. Sources familiar with the Future Fund said there had been no contact between her and the BBB in relation to the loans.
The firms Murty had investments in weren’t the only fund recipients with an investor linked to No 10. Lord Brownlow, the Conservative donor and entrepreneur who helped pay for the refurbishment of Boris Johnson’s Downing Street flat, owned more than 25% of financial management company Money Concierge. This business, too, collapsed without ever converting its taxpayer-funded loan into equity.
Brownlow did not respond to requests for comment, and company filings do not disclose the size of the Future Fund loan.
Mark Hart, professor of small business and entrepreneurship at Aston Business School, said he did not see why the Future Fund was set up to invest in startups. “The venture capital industry was perfectly capable of doing this,” he said, “so why does taxpayers’ money have to get involved?”
The BBB’s due diligence on the loans – often performed in a matter of weeks, such was the government’s haste to make funds available to firms – was relatively loose, requiring chiefly that funding was also coming from private investors. “If you met the criteria, you got the money,” said Hart.
One of the more spectacular failures was that of organic food delivery service Farmdrop, which collapsed just before Christmas 2021 owing £21.2m to creditors, £2.6m to trade suppliers and £600,000 to HMRC.
Companies House filings do not disclose how much the Future Fund had lent to Farmdrop, but a source familiar with its collapse said the figure was about £3m. Its major shareholders included the Wheatsheaf Group, which is majority-owned by the Duke of Westminster, who was named as the world’s richest person under 30 in 2020.
A BBB spokesperson said the fund “was established to ensure a flow of capital, at the height of the pandemic, to companies that typically rely on equity investment and were unable to access government support schemes because they were pre-revenue or pre-profit.
“All investments made by the Future Fund were based on a clear set of eligibility criteria and neither British Business Bank nor the government explicitly chose investments.
“An independent economic evaluation of the Future Fund found that it provided a lifeline to hundreds of businesses during the pandemic, with 48% of recipients saying their company would have been likely to close without its support.”
One venture capital professional, who asked not to be named, said this assertion was not necessarily evidence of success.
“It’s a mixture of old companies taking free money and companies that weren’t that great using the fund to persuade investors to give them another chance,” he said.
“This was a naive and stupid idea, and a really bad use of taxpayers’ money. The number of failures will go up considerably when those companies run out of cash.”
