Future Fund: the essential Q&A for innovative businesses - Guides - Gateley

Future Fund: the essential Q&A for innovative businesses

Gateley Legal

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The Future Fund was announced by the Government on 20 April 2020 as part of a support package for sectors which drive innovation and development in the UK.

Specific support for the sector was needed as many innovative businesses were either pre-revenue or pre-profit and couldn’t access other government business programmes such as CBILS. 

What support is available?

In April, a £1.25 billion government support package was announced, which comprises:

  • a £500 million loan scheme for high growth firms (the Future Fund); and 
  • £750 million of targeted support for small and medium sized businesses focussing on research and development (R&D Support). 

The Government has committed an initial £250 million to the Future Fund, which will be open until the end of September.

Chancellor Rishi Sunak is reported to have told MPs that he is “more than happy” to increase funding if demand exceeds the initial commitment.

How does the Future Fund work?

UK-based companies will be provided with between £125,000 and £5 million in Government support which must be at least matched by co-investment from third-party investors – meaning that only those eligible companies that can attract at least 50% of third-party investment will receive funding via the Future Fund. The minimum loan to a company is therefore £250,000 in total.

The Future Fund is structured as a “convertible loan” which enables a lender to convert its loan to shares at a specified timeframe. As a result a company applying for a Future Fund loan doesn’t have to: 

  • value the company or the price of its shares, which is clearly advantageous in the current climate where company valuations may be significantly impacted by COVID-19; or 
  • make regular repayments. 

Application to the Future Fund is initiated by a lead investor via an online platform. The lead investor will provide information about itself, any other investors and the company seeking the Future Fund loan. If the application is successful, documentation will be generated for the company and all of the investors to sign. 

A solicitor must be appointed as part of the arrangement to facilitate the mechanics of payment of the loan.
The online application platform opened on 20 May 2020.

Who can apply for the Future Fund?

To be eligible, the company receiving the Future Fund loan must:

  • be incorporated in the UK; 
  • have raised at least £250,000 in equity investment in the last 5 years from third-party investors (i.e. not directors/employees/other connected persons);
  • not trade any of its shares on a regulated market, multilateral trading facility or other listing venue; 
  • have been incorporated on or before 31 December 2019; 
  • either: 
    • have at least half of its employees based in the UK; or 
    • generate at least half of its revenue from UK sales. 

If a company is part of a corporate group, only the parent company is eligible to access the Future Fund.  The investors must also meet specific criteria, one of which is that they cannot be a director, employee, a member of family or a friend.

What are the headline terms?

The loans will have a minimum interest charge of 8% per annum, however this could be higher if agreed between the company and the investors.  Interest is not payable on a monthly basis, rather it accrues until the loan converts at which point either the interest is repaid or converted to equity.

Subject to certain events including insolvency, the loan matures after 3 years at which point it will either be converted to shares or repaid. In the event of repayment, a 100% redemption premium will be payable.

How long will it take?

The British Business Bank anticipates that funding will be awarded within 21 days of application but this may increase in certain circumstances, such as a delay in providing information as part of the application process. 

What will the paperwork look like?

The following documents must be entered into, all pre-defined and not subject to negotiation, save for four commercial terms in the loan agreement including the applicable rate of interest:

  • a directors’ certificate;
  • a convertible loan agreement between (1) the company, (2) the Government entity administering the Future Fund loan and (3) all other third party investors; and 
  • a confirmation letter entered into by the solicitor instructed to act in relation to the application. 

What should be considered when applying for a Future Fund loan?

No lender is obliged to make a loan to the company unless all other loans are made simultaneously. If one third party investor pulls out the Government is not obliged to lend either. 

Concerns had been raised that Future Fund loans did not meet current Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) qualifying requirements and relevant tax relief would not be applicable on an EIS or SEIS qualifying investment. The Government has since confirmed (on 20 May 2020) that it will amend the rules of the EIS to protect Future Fund investors from losing relief on their previous investments.  

Money received via the Future Fund cannot be used for the following purposes:

  • to repay any borrowings from a shareholder;
  • to pay dividends or other distributions; 
  • to make bonus or other discretionary payment to any employee, consultant or director of the Company (other than those which are contractual prior to the date of the agreement and as paid by the company in the ordinary course of business) for a period of twelve months from the date the agreement is entered into; or 
  • to pay any advisory or placement fees or bonuses to any corporate finance entity or investment bank or similar service provider on monies advanced by the Future Fund.

Loans are repayable on demand in the event of an “Event of Default” as defined in the loan agreement. 

The loan agreement provides the relevant Government entity with various rights, including:

  • quarterly reporting, with financial information due within 90 days of entering into the Future Fund agreement and thereafter on a quarterly basis; and 
  • the right to request a meeting with the company.

How can the R&D Support be accessed?

Innovate UK, the national innovation agency, will accelerate up to £200 million of grant and loan payments for its 2,500 existing Innovate UK customers on an opt-in basis. An extra £550 million will also be made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding.

Where can I find further information?

For more information regarding Future Fund visit the British Business Bank's website or contact our experts listed below.


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