A British start-up paid taxpayers’ money to an investor who helped it raise funds
A British payments start-up now facing bankruptcy took taxpayers’ money from Rishi Sunak’s Future Fund and used it to buy technology from an investor who helped it raise money.
GoodBox raised £9m in a January 2021 convertible loan deal with the Future Fund program, which operated in the first year of the pandemic, according to people familiar with the matter and communications with shareholders seen by the Financial Times.
Half of the money came from a Guernsey company called Q Invest Limited, which is controlled by British entrepreneur Miles Carroll. The remaining £4.5million came from the taxpayer.
A portion of the funds was allocated to purchase payment processing technology, called a payment gateway. Three days before signing the deal with the Future Fund, GoodBox agreed to license such technology from Q Invest at a cost of £5.2 million, meaning Q Invest would recover in spends over £700,000 of taxpayers’ money.
GoodBox, which sells payment devices for charitable donations, has since found itself facing administration, according to the shareholder communication. A creditor of the company is seeking to appoint administrators while GoodBox itself has now hired advisers to pursue an out-of-administration prepackage sale.
The news is a blow to the UK government’s venture capital fund, a scheme that has allowed the taxpayer to own stakes in a wide range of UK start-ups, including a cannabis products company and a South London brewery, but which has been hit by low levels of fraud.
David White, chief executive of GoodBox, did not respond to requests for comment. Carroll, who is also a shareholder of GoodBox, said in a brief phone call, “I’m not going to comment.” He did not comment in detail when contacted later by FT via email. However, he said there were inaccuracies in the details the FT told him, but he was unable to clarify them due to confidentiality clauses.
The Future Fund, which has deals worth £1.1billion with more than 1,000 start-ups, required companies to find a third party to apply on their behalf. It offered funding of up to £5 million, which the lead investor had to at least match. The loans have a term of 36 months.
The terms of the Future Fund do not appear to have prohibited companies from purchasing services from their primary investor.
GoodBox was founded in 2016 and counts the Church of England, the Natural History Museum and the British Red Cross among its clients, according to its website. The company raised funds in 2019 at a pre-valuation of £19m on Seedrs, the crowdfunding site.
The company has been hit hard by the pandemic, forcing it to raise emergency funding in early 2020 at just 12.5% of the share price it commanded the previous year. It then secured backing from the Future Fund, which provided convertible loans to all companies that met its criteria.
In a January 2021 message to shareholders, GoodBox described the Future Fund’s £9m funding as “conditional” on the company doing its best to buy a payment gateway. GoodBox said the “final requirement” to close the Future Fund round was to obtain shareholder approval to spend up to £5.2 million on such a purchase. He said that amount was “the price set for a gateway of particular interest”, which he did not identify.
In April this year, GoodBox told shareholders that the Future Fund round had given the company enough money to “drive us to profitability” and enabled it to obtain “key payment software” from at a cost of £5.2 million.
However, he said revenue has not recovered as quickly as expected and said the payment software was still “undergoing rigorous due diligence and will only be accepted once it has been fully vetted and checked”. Carroll told the FT that a potential dispute between Q Invest and GoodBox has been resolved out of court.
GoodBox also told shareholders that “uncertainty over the implications” of the Future Fund’s convertible loan rating prevented it from obtaining the required 75% shareholder approval for a recent funding attempt.
Future Fund loans are typically converted into equity at a 20% discount to the prevailing price during a funding round. Loan note holders have the option to convert if a funding round is less than the loan size. The conversion is automatic for towers of equal or greater size.
Last week, an IT supplier to GoodBox, NGI Systems, requested the appointment of administrators. GoodBox told investors this week, in documents seen by the FT, that NGI “claims huge sums of liabilities, which we dispute”. A hearing has been set for Friday, according to GoodBox. NGI is controlled by GoodBox co-founder and CTO Tibor Barna.
NGI Secretary Ioan Polianciuc said in an email: “We consider it to be in GoodBox’s best interest to have administrators appointed by the court to review certain questionable board transactions. A key example is a £5.2m deal that involved funding from UK taxpayers.
The British Business Bank said: “Investments made by the Future Fund were based on a standard set of terms with published eligibility criteria.”
“It would not be appropriate to comment on individual cases given the commercial sensitivities,” he added.