The UK government plans to launch a £500 million coinvestment fund for startups struggling to survive COVID-19.

Half that cash will be government money issued via convertible notes, with the private sector expected to match funding on a deal-by-deal basis.

Business Insider reported in March that startup backers were seeking up to £300 million in rescue funds for early-stage startups.

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British venture-backed startups strapped for cash during the coronavirus pandemic will get a helping hand from the government.

To keep the UK's tech and life-sciences industries afloat as COVID-19 bites, the Treasury has announced a £1 billion bailout package targeted at startups and innovative small and medium-size businesses.

There are two parts to the bailout package.

The first is a coinvestment fund called the Future Fund, which is expected to make up to £500 million, or $625 million, available to venture-backed early-stage startups.

The government has now rubber-stamped an initial £250 million, or $300 million, of taxpayer cash for the Future Fund, with the private sector expected to make up the remaining half.

Business Insider first reported on this fund in March, when investors warned that thousands of startups could collapse thanks to the coronavirus-related economic slowdown.

As expected, the Future Fund will be managed by the state-backed British Business Bank and is scheduled to launch in May. The fund will offer eligible startups £125,000 to £5 million via convertible notes that will convert to shares on the startup's next funding round. This funding, however, must be matched by private backers.

In other words, this won't just involve government cash propping up startups; it will also see the UK government taking stakes in some of the country's fast-growing early-stage startups.

Sources indicated last week, however, that the government was unlikely to hold its equity through later funding rounds. Instead, they said, it was probable that late-stage investors would be given the option to buy the government out.

According to a Treasury statement on Sunday, startups applying to the Future Fund will need to have raised £250,000 from private backers within the past five years to qualify. The Treasury has yet to publish all the eligibility criteria.

The package doesn't apply to the UK's bigger "unicorn" startups, which are in separate discussions with the government on accessing the Treasury's financial plans for businesses. Twelve larger-stage tech firms wrote to the government earlier in April asking for financial help and warning that the tech sector was "at risk" during the COVID-19 pandemic. Those discussions are ongoing.

The remaining £750 million funding tranche of the £1 billion package is targeted at small and medium-size enterprises that are focused on research and development and are thus likely to be burning cash. That funding will be available through the UK's innovation agency, Innovate UK.