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The Future Fund Guide For Investors And Entrepreneurs

Posted 6 months ago

The Future Fund Guide For Investors And Entrepreneurs
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In addition to the government’s already extensive package of support for small businesses, the Future Fund opened for applications on Wednesday 20th May 2020.

The £500m fund, of which the Treasury will match with £250m, comprises convertible loans to start-ups in an attempt to help them ride out the wave of disruption caused by the Covid-19 pandemic. The loans will range from £125,000 to £5m.

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 (CBILs) and are more suited to equity investment.

In this guide, we offer information and advice, as well as answer some of the main questions on the minds of investors.

Future Fund Overview



The process

Matched funding?

Size of loan

Use of proceeds

Crucially, applications are submitted by investors. The company does not. An investor, or lead investor of a group, applies in connection with an eligible company. Companies can however register their interest

Up to 100% of the amount pledged by investors will be matched by the government, up to a maximum of £5m.

The amount provided to companies can range from anywhere between £125,000 and £5m. The loan amount must be matched by the investors

Received funds cannot be used to repay any borrowings; pay dividends; pay any bonuses; pay advisory fees.

Interest rate

Term

Conversion

Standard terms

Loans under the Future Fund will have a minimum interest rate of 8% per year. Loans under the Future Fund are not like a typical bank loan

The loan will mature after 36 months and cannot be repaid early unless agreed by all investors

Loans will convert into shares in the company in some instances, including a new funding round.

Investors and the government invest through a convertible loan agreement

 

Your questions answered

As would be expected with the launch of a new scheme, there are many questions on the minds of investors and entrepreneurs surrounding the technicality of the Future Fund. We aim to address these below:

Can start-ups apply?

The answer is: no. Unlike other government support schemes, where a business owner would apply, the nature of this scheme requires an investor or lead investor to submit an application.

Who can be an investor?

A private investor who can provide matched funding is able to invest as part of the scheme. According to Michael Buckworth of law firm Buckworths, “They can be an individual, a VC or a corporate investor.”

Who can be a lead investor?

Any person can be a lead investor so long as they are investing at least £12,500.

What about EIS?

The Chancellor said on 18 May that the scheme cannot be used in conjunction with the Enterprise Investment Scheme 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.

Will previous SEIS and EIS investments be affected by the Future Fund?

The government has confirmed that such previous investments will not be affected where the convertible loan converts into shares. Where the convertible loan note redeems, we have been alerted that the government intends to make changes to the rules to clarify that this is compatible with such previous investments.

How long does it take to fill in the Application?

Completion of the initial part of the Application should not take a long time but will require the Lead Investor to have certain information to hand – this information is set out at the start of the Application process.

When do the Loans convert into equity?

The Loans can convert into shares in the Investee Company in a variety of circumstances, including fundraisings, exit events and upon the maturity of the Loans. Please note that Loans may alternatively be repaid on an exit event or at their maturity date either at the election of Investors or, in certain cases, automatically.

How do you begin an application?

A Lead Investor must initiate an Application in respect of the relevant Investee Company. An Investee Company (i.e. a company seeking investment) cannot initiate an Application. Once a Lead Investor has submitted an Application, you will receive an email with instructions on how to (i) proceed with opening an online account; and (ii) progress the Application.

Where do you apply for the Future Fund?

You can get an application form from the government. Click here to fill out the form

 

 

 

 

Author: Sacha Bright & Oliver Murphy

Disclaimer

To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.

 

 

 

Tagged: Future Fund Government Covid-19 Investors Entrepreneurs Investment



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