Government’s Future Fund open for applications

Published by Jack Clipsham on 4 November 2020

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Last updated 4 November 2020

The Government announced on 20 April a new £250m package of support specifically aimed at unlisted, fast-growing businesses that have previously received external equity investment, called the Future Fund. It opened for applications through the Future Fund Portal on 20 May.

Delivered through convertible loans, the Future Fund may be a suitable option for businesses that rely on equity investment and are unable to access the Coronavirus Business Interruption Loan Scheme.

The Future Fund will make convertible loans of between £125,000 and £5m to businesses through its lead investors alongside equivalent match funding. The Fund is only available to unlisted businesses that have a substantial economic presence in the UK (i.e. 50% or more of its revenue comes from the UK, or 50% or more of its employees are based in the UK) and have previously raised external funding of up to £250,000 in equity investment in the last five years. Loans will be delivered in partnership with the British Business Bank.

Further eligibility criteria applies. More information can be found here.

The loans, however, come with a catch: a minimum interest rate of 8% and a trigger, such as an IPO or sale, that could see the loan converted into equity at a 20% discount to value, or repaid with a 100% premium.

The interest will be higher if the company and the investor(s) agree between themselves. Unlike a typical bank loan, the interest will accrue until the loan converts. At this point, the interest will either be repaid or convert in equity.

It is hoped that the Future Fund will plug the gap that angel and private equity investors have left as investment in new transactions has all but dried up.

The first thing to note is that the Future Fund is not open to businesses directly, with applications only available via lead investors. Applications will need to be made through an online portal with funds made available on a first-come, first-served basis.

Those investors wishing to access the Future Fund should also note that only limited commercial terms can be negotiated and that matched funding will not benefit from EIS or SEIS treatment.

The terms of the Future Fund need to be considered in detail, in conjunction with existing and potential investors. If this is truly the only option available to ensure the future of the business then it will be a welcome option, but participants need to enter into it fully understanding the implications and the cost of that support that will crystallise at some point in the future, keeping in mind that the maximum term of the loan is 36 months.

The scheme is open for applications until 31 January 2021.

If you would like to discuss the Future Fund, contact Jack Clipsham, Partner and Head of Corporate Finance at Kreston Reeves, here.

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