The British government is expected to join Iron Maiden frontman Bruce Dickinson as a shareholder in an aerospace start-up trying to bring the Zeppelins back to British skies.
Last year, the government’s flagship startup support fund lent money to Hybrid Air Vehicles as part of a crowdfunding round that helped it survive the pandemic. The government convertible loan is now very likely to become an equity stake as Hybrid Air Vehicles considers another £ 30million funding injection.
The government’s Future Fund backed Hybrid Air Vehicles last July in a £ 1.8million crowdfunding deal. The government’s involvement in the deal was not reported at the time, although it was disclosed to investors on crowdfunding site Crowdcube.
Hybrid Air Vehicles is a Bedfordshire-based startup that has spent over a decade building a ‘hybrid’ airship that looks like a Zeppelin or an airship. The aircraft uses a combination of helium gas, aerodynamic lift and rotating blades to gain altitude and navigate the sky.
“It’s something a little different from anything we’ve seen before,” Managing Director Tom Grundy told Yahoo Finance UK. “It’s not the same as an airship, it’s definitely not the same as a fixed-wing plane, it’s not the same as a helicopter.”
Hybrid Air Vehicles was founded in 2007 and £ 120million has so far been spent on the development of its aircraft, Grundy said. Funders include Iron Maiden frontman Bruce Dickinson, a renowned aviation enthusiast.
Investors are drawn to the low environmental impact of the company’s technology. Hybrid Air Vehicles planes emit 75% less carbon than other modes of air travel and the planes will soon be carbon neutral, Grundy said. Flagship Airlander vehicles could be used for freight transport, defense and surveillance, and city-to-city passenger transport, he said.
Hybrid Air Vehicles was on the verge of signing its first trade deals last year when the pandemic struck and derailed its plans.
“You don’t bring technology like this to market without some challenges along the way,” Grundy said. “We weren’t expecting, as no one else was, anything on the scale of the pandemic.”
The crisis forced Hybrid Air Vehicles to raise more money. The Future Fund was “very important” because it acted as “the cornerstone” of the investment cycle, Grundy said.
The government launched the Future Fund last year to help support startups that have been excluded from other government-backed COVID loan programs. Under the scheme, startups could raise up to £ 5million via a convertible loan as long as the funding was matched by a private venture capital investor.
“Future Fund, now closed to new applications, has successfully addressed the immediate funding challenge that many innovative and private equity-funded UK companies have faced as a result of Covid-19,” said a spokesperson for the UK. British Business Bank, which administers the fund on behalf of the government. “Funding was made available quickly and widely.
Grundy and Hybrid Air Vehicles declined to say how much the Future Fund had invested, but the matching mechanism suggests the government could have invested up to £ 900,000. The company declined to comment on this figure.
“For a company like ours, the Future Fund has allowed us to anchor and develop a larger group of investors around real strength in a very uncertain situation,” said Grundy. “This is an example, I think, of how government intervention on a relatively small scale and at the right time can build confidence.
“It allowed us to keep moving forward. This allowed us to be ready. We want to make sure we come out of this game fit and ready to be a part of this expansion of greener industries, greener technologies. “
A spokesperson for the British Business Bank said: “Ensuring that these companies can continue on their growth trajectory and reach their full economic potential is the goal of the Future Fund.
“More than 1,000 companies have been approved for convertible loans worth over £ 1.1 billion. Innovative businesses are essential to spur the growth needed to support the UK’s long-term prosperity. “
Hybrid Air Vehicles has now resumed discussions with potential business customers. Grundy said the company would likely need an additional £ 140million to put its Airlander planes into production. Hybrid Air Vehicles is in active talks to raise around £ 30million.
Such a deal would most likely see the Future Fund loan converted into shares. Under the three-year loan agreement, the capital turns into equity if the company raises new money that is more than the Future Fund’s investment.
“Typically the program is designed to convert,” said Henry Humphreys, partner at Humphreys Law, a law firm that has worked on several Future Fund transactions.
Grundy said the Future Fund arrangement “will continue.” The company declined to comment further.
British Chancellor Rishi Sunak last week announced the successor of the Future Fund, nicknamed the Future Fund: Breakthrough. They will take direct stakes – rather than convertible loans – and have an initial amount of £ 375million to invest.
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