Barclays on Friday launched a £100 million fund that it will use to provide debt financing to U.K. tech start-ups.
The bank will lend up to £5 million to budding businesses, repayable over three years. To be eligible, a company needs proof that it has secured venture capital funding.
Barclays is pitching its fund as a way for young companies to raise capital without selling equity, enabling entrepreneurs to retain control of the business and focus on its development.
"Fast-growth technology companies in the U.S. have long been able to access debt finance early in the lifecycle, and some of the most successful U.S. technology firms, including Facebook and Google, have grown their businesses with help from this type of funding," explained Sean Duffy, managing director of Barclays’ technology, media and telecoms team, in a statement.
"We believe it is important for fast-growth technology companies in the U.K. to be able to access a similar range of financing solutions, including early- stage debt funding, which together with existing equity investment can provide businesses with a more efficient capital structure," he said.
The standard approach to debt financing for young companies has been to look for a history of positive EBITDA and strong cash generation, Barclays said. However, most fast-growth start-ups will reach operating profitability and reinvest the proceeds in R&D, sales, and marketing in a bid to drive top-line growth at the expense of EBITDA. This makes conventional European lenders uncomfortable.
Evidently, Barclays believes companies like this are worth the £100 million risk.
"We identified a significant gap in the traditional way technology businesses were financed, and with this new drive we will be truly able to support businesses right from their inception, to becoming major global players," said Ashok Vaswani, chief executive of Barclays personal and corporate banking.
Indeed, a recent study by Barclays concluded that the U.K.’s tech businesses are set grow four times faster than GDP in 2015.
"This new fund offers a welcome boost to growing U.K. technology firms, and will provide a catalyst for their development into larger companies," Vaswani said.
