It has been confirmed that the Future fund that is designed to support fast-growing UK Companies will launch on Wednesday 20th May. It is hoped that this will pave the way for investments by hundreds of venture capital funds and we have put together this blog to help you find out more...
Developed by the government and delivered by the British Business Bank, the Future Fund will help high growth/early stage companies through the current period of economic disruption and recovery, so they are able to continue their growth trajectory and reach their full economic potential.
How it's structured
Operating on a commercial basis, the Future Fund will deliver an initial commitment of £250m of new government funding which will be unlocked by additional third-party investment on a match funded basis. This is intended to create a bridge to the next equity funding round for innovative companies with good potential, that are essential in ensuring the UK retains its world leading position in science, innovation and technology. These companies will typically rely on equity investment and like many will be currently affected by Covid-19.
The Future fund will use an online platform for applications, with an intention to provide a clear, efficient way to make funding available as widely and as swiftly as possible without the need for lengthy negotiations. The process is investor-led and it should be noted that the platform will not match companies seeking funding with investors.
How it works:
- Between £125k - £5m government support is available: UK-based companies will get between £125k and £5m in government support and third-party investors must at least match the government commitment. This means the minimum loan to a company is £250k with no maximum, since there is no upper limit on the amount that additional investors may co-invest.
- Broad range of third-party investors: A broad range of third-party investors can invest alongside government as a part of the the scheme.
- Convertible loans: The Future Fund programme uses a recognised financial structure known as a convertible loan. Unlike equity investment, there isn't a requirement under the convertible loan to value the company or the price of it's shares, at a time when company valuations have been significantly impacted by Covid-19. There is no requirement for a company to make regular repayment. Instead, the convertible loans are designed to convert into equity at the next funding round, when an equity value can be negotiated between companies and investors.
- Investor-led: The Future Fund programme is investor led. An application on the platform is initiated by a lead investor who will provide information about itself, other investors in the round and the company. If an application is successful, the platform will generate documentation for the company and all investors to sign. As this is not a matching service, each company seeking funding must have already identified investors to contribute the matched funding amount.
- Self-certification: Companies will be responsible for confirming company information and reviewing the application before submission and as part of the legal documentation at completion of the Convertible Loan Agreement.
- Role of the solicitor: as part of the scheme, companies appoint a company solicitor to facilitate the payment mechanics at completion of the Convertible Loan Agreement. It is anticipated that solicitors may provide legal advice to clients interested in the scheme.
- Companies must be UK-incorporated and if part of a corporate group, only the parent company is eligible.
- Companies in receipt of the loans will be required to have previously raised at least £250k in equity investment from third party investors in the last five years.
- Only eligible companies that can attract at least 50% of third-party investment will receive funding.
- Companies cannot have any of their shares traded on a regulated market, multilateral trading facility or other listing venue.
- The company must have been incorporated on or before 31st 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.
How to apply
Information about the Future Fund, including standard terms and eligibility criteria, is available via the Future Fund website at https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/future-fund/ and the Future Fund portal will open for applications on Wednesday 20th May.