Future Fund Update
The Future Fund, announced by the government on 20 April 2020, opened for applications on 20 May 2020.
The aim of the Future Fund is to support innovative UK companies, with good potential, in science, innovation and technology sectors who are currently affected by Covid-19. Typically these businesses rely on equity investment and are facing an extended length of time between funding rounds due to the impact of the current economic disruption.
The Future Fund scheme delivers, though the British Business Bank, an initial commitment of £250m of new government funding, which is unlocked by private investment on a match funded basis. The Scheme is open to online applications here until the end of September 2020.
Key features of the Scheme
Matched Funding – The Future Fund will match up to 100% of the loan amount provided by third party investment, from £125,000 up to a maximum of £5,000,000.
Use of funds – Funding must not be used to (a) repay any borrowings from a shareholder; (b) pay dividends or distributions; (c) unless previously contracted to do so, pay any bonuses (within 12 months of the date of entering into the convertible loan agreement) or (d) pay any corporate advisory fees (or similar) in respect of monies advanced by the Future Fund.
Term and interest rates – The loans will mature after 36 months and have an interest rate of 8% per annum (non-compounding), or higher if agreed between the company and the investors. Interest will not be payable monthly but will accrue until the loan converts (see below).
Convertible loan agreement – all investors and the Future Fund will invest using a convertible loan agreement with fixed terms (non-negotiable). The loans will convert into shares in the company where there is an exit or future funding round. This loan structure means that the company does not need to be valued and the company is not required to make regular payments.
There is a set of eligibility criteria for both the investors and the company.
To be eligible to invest in the convertible loan agreement all investors must fall into one of the investor categories which are based on those set out in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 Act and the FCA’s handbook of rules and guidance.
The company must meet the following criteria:
- The company must have raised at least £250,000 in equity from third-party investors in previous funding rounds in the last five years (from 1 April 2015 to 19 April 2020, inclusive)
- If the company is a member of a corporate group, it must be the ultimate parent company
- The company does not have any of its shares or other securities listed on a regulated market, a multilateral trading facility, a recognised investment exchange and/or any other similar market, stock exchange or listing venue
- The company must be a UK incorporated limited company and must have been incorporated on or before 31 December 2019
- At least one of the following must be true for the company:
- Half or more employees are UK based
- Half or more revenues are from UK sales
The process is investor led which means that the online application will be initiated by a lead investor who will provide information on behalf of itself, any other investors and the company. The company will be responsible for checking and confirming the detail contained in the application.
If an application is successful, the required documentation will be generated online for the company and investors to sign.
A solicitor will need to be instructed by the company to assist with completion of the convertible loan agreement and facilitate the payment mechanics. Of course we will also be able to advise parties on the eligibility criteria, terms of the convertible loan agreement and other ancillary corporate documentation required.
Full terms and eligibility criteria for the Future Fund can be found here.
If you need any help or would like to discuss an application to the Future Fund, please do not hesitate to contact us as we would be delighted to help.