A new form of financial help for UK venture-backed companies is launched by the government on 20 May called the Future Fund. It is open until the end of September.
However, demand for the fund drained its £250m capacity within just one day, according to reports, so the Chancellor is expected to provide more money to keep it going.
The help is in the form of convertible loans ranging from £125,000 to £5 million to UK companies, subject to at least equal match funding from private investors.
Funds under the scheme cannot be used to repay shareholder or related party loans (other than under any bank or venture debt facilities), pay dividends, pay bonuses or discretionary payments that are non-contracted or not in the ordinary course of business for 12 months, or pay advisory, placement or similar corporate finance type fees in relation to the convertible loan agreement.
The funding will automatically convert into equity on the company's next qualifying funding round
The scheme, delivered in partnership with the British Business Bank, is aimed at companies that cannot access the Coronavirus Business Interruption Loan Scheme and are more suited to equity investment.
The British Business Bank has published a series of FAQs about the Future Fund for investors.
The Chancellor said on 18 May that the scheme cannot be used in conjunction with the Enterprise Investment Scheme or SEIS as these are EU state aid schemes.
This means that co-investors cannot claim tax relief for their investment, something which could threaten appetite for the scheme, although clearly not at the moment as it has proved more popular than thought..
The government has, however, confirmed that existing EIS investments will not be affected (i.e. not be automatically withdrawn) where the convertible loan converts into shares. Also, where the convertible loan note redeems, the British Business Bank explained that government intends to make changes to the rules to clarify that this is compatible with SEIS and EIS.
In a government statement on 20 May, it said
"The government will also amend the rules of the Enterprise Investment Scheme, which provides tax relief to investors in high growth firms, to protect Future Fund investors from losing relief on their previous investments made prior to any investment through the Future Fund."
More details about the scheme can be found in the headline terms.
|Investor-led process||Matched funding||Loan size||Use of proceeds|
|The application process is investor-led. This means an investor, or lead investor of a group of investors, applies in connection with an eligible company.
Companies are still able to register their interest - see the Company page for information.
|The Future Fund will match up to 100% of the amount provided by investor(s), up to a maximum of £5 million.||The Future Fund loan amount provided to the company ranges from £125,000 to £5 million.
Amounts of Future Fund loans must be at least matched by co-investment from investors.
|Funding must not be used to (a) repay any borrowings;(b) pay any dividends; (c) pay any bonuses; (d) pay any advisory fees.
|Interest rate||Term||Conversion||Standardised terms|
|The loans will have a minimum of 8% per annum (non-compounding) interest charge applied. This interest will be higher if the company and the investor(s) agree between themselves. Unlike a typical bank loan, the interest is not payable on a monthly basis and instead will accrue until the loan converts. At this point, the interest will either be repaid or convert in equity.||The loan will mature after 36 months.
The loan cannot be repaid early by the company other than with the agreement of all of the investors.
|The loans will convert into shares in the company in certain circumstances, including an exit or a new funding round.||Investors and the Future Fund both invest using a convertible loan agreement, which is predefined and cannot be negotiated.|
In order to be eligible for the scheme, each of the investor(s) and the company must meet specific criteria.
The investor must fall within any of the following categories:
Note that all other investors must fall within one of the above categories in order for them to be eligible to invest in the convertible loan agreement. It is the responsibility of other investors to ensure they are eligible.
To be eligible for the scheme, the company must meet the following criteria:
Investors and companies should note that the proceeds of the convertible loan agreement must not be used by the company to:
Government Business Support website
Guidance on Government measures to support public services, people and businesses through this disruption.
Coronavirus Business Interruption Loan Scheme (CBILS) for smaller businesses
Guidance on how smaller businesses can apply for CBILS funding.
Coronavirus Large Business Interruption Loan Scheme (CLBILS)
Guidance on how larger businesses can apply for CLBILS funding.
Bounce Bank Loan Scheme (BBLS)
Guidance on how small and micro businesses, in all sectors, can access the BBLS scheme.
SMEs focusing on research and development will also benefit from £750 million of grants and loans through the Innovate UK’s grants and loan scheme.
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. The first payments will be made by mid-May.
This package builds on the government’s existing support for innovative, high-growth firms including the £2.5 billion British Patient Capital fund, the upcoming £200 million Life Sciences Investment Programme, internationally competitive R&D tax reliefs and our major commitments to increase public R&D spending to £22 billion by 2024-25.
Further information about the Innovation Support Grants was published on 15 May.
Please check out the Business after COVID-19: Transition Knowledge Hub.