Looking to the future – The Government announces the new ‘Future Fund’ for innovative companies

Posted on Thursday April 30, 2020

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By Harriet Jones, Solicitor in the Mackrell.Solicitors’ Corporate Team

The Government recently announced the Future Fund as one of the latest schemes it is introducing to help support businesses through the current pandemic. This scheme is aimed at fast-growth and innovative companies which are facing financial difficulties but which have been unable to access other Government support such as the Coronavirus Business Interruption Loan Scheme (CBILS).

At this stage, only headline terms have been published but we expect further details to be released in the next few weeks given that the scheme is due to launch in May.

Eligibility criteria

In order to be eligible for the scheme, companies must:-

  1. be an unlisted UK registered company with a substantive economic presence in the UK (excluding group companies with a UK parent with a majority of their operations overseas);
  2. have raised at least £250,000 from third party investors in the last five years; and
  3. be able to raise an equal amount in match funding from private third party investors.

Headline terms

The headline terms for the Future Fund loans are summarised below:-

  • the loans will have a term of 36 months;
  • the interest rate will be at a minimum of 8%;
  • they will range from £150,000 to £5million;
  • the loans can be used for working capital purposes only (they cannot be used to repay borrowings, pay dividends or for staff bonuses);
  • the loans will be convertible and will automatically convert into equity at a 20% discount rate on a conversion event (for example, a further qualifying funding round);
  • on maturity, the loan shall (at the option of the matched investors) either be repaid at a 100% premium or converted into equity at a discounted rate; and
  • on sale or IPO, the loan shall either covert into equity at a discounted rate or be repaid at a 100% premium, whichever will provide the higher amount for the lenders.

 

Commentary

The fund is no doubt a positive step towards helping fast-growth and innovative companies. With an initial amount of £250,000,000 being made available for the scheme, this will be welcome news to many businesses. It is however important to remember that the scheme offers businesses unsecured bridge funding and is therefore only intended to be a short-term fix. The conversion terms are fairly robust and reflect the need to avoid the taxpayer propping up failing businesses.

Further details are required before we can assess how popular this scheme will be in practice (in particular further clarification will be needed as to who qualifies as ‘private investors’ for the purposes of match funding). It also seems that matched funding will be limited to convertible loans and so these would not currently qualify for SEIS/EIS relief. As this is likely to deter private investors, we may see this scheme refined so that such relief is made available.

The scheme will be open until September 2020 (although this will be reviewed) and it is therefore important businesses act quickly. We will provide further updates as more information is made available. Please contact our Corporate Team if you have any questions about the Future Fund.