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Future Fund – access to growth capital for high growth companies

Jon Davage

Future Fund – access to growth capital for high growth companies

The Coronavirus pandemic has seen a reduction in the usual funding streams for some businesses and has forced the Government to think creatively about how they can support promising, infant companies. The result is the new Future Fund.

What is the Future Fund?

On the 20th May 2020 the Government launched another Coronavirus short term rescue package to support business. The Future Fund is aimed at helping pre-revenue or pre-profit companies that were struggling to qualify for other Government rescue packages.

The Future Fund is aimed at fast growing companies and works on the basis of unsecured convertible loans issued by the Government that must be matched in funding by private investors.

Companies from all industries can access funding ranging from £125,000 to £5 million.

Commentators speculated pre-launch on whether the Fund would be popular as it was not compatible with the popular investor tax relief schemes EIS and SEIS. However, launch day saw applications for over £400 million, completely exhausting the initial £250 million capacity that the Government had set for the Fund.

Key features of the scheme:

  • Future Fund will match up to 100% of the amount provided by investors up to the maximum cap of £5 million.
  • The loan will mature after 3 years. The loan cannot be repaid early by the Company other than with agreement of the investors. Loan is repayable on demand in event of default.
  • The loan will automatically convert into the most senior class of shares in the company at its next qualifying funding round at the minimum conversion discount of 20% to the price paid by new investors in that round.
  • Funding must not be used to:
    • Repay borrowings;
    • Pay dividends;
    • Pay any bonuses; or
    • Pay any advisory funds.
  • The loan will have a minimum interest of 8% per annum however this could be higher if agreed between the company and the investors. Interest is not payable on a monthly basis, rather it accrues until the loan converts at which point either the interest is repaid or converted to equity.

Who is eligible/ can apply?

The application is an investor led process. A change to the application process was made on 2 June 2020 which placed an obligation on the company directors to confirm the investor is not ‘connected’ to the company (as defined in the Corporation Tax Act 2010, as such a majority owner of an Investee Company or persons connected to such majority owner cannot invest), the investor must therefore fall into any of the following categories:

  •  an “investment professional” within the meaning given to that term in article 19 of the FPO
  • a high net worth company, unincorporated associated or high value trust falling within article 49(2) of the FPO
  • a “certified sophisticated investor” or a “self-certified sophisticated investor” within the meaning given in articles 50 and 50A respectively of the FPO
  • a “certified high net worth individual” within the meaning of article 48 of the FPO
  • an equivalent professional, high-net worth, institutional or sophisticated investor in accordance with applicable law and regulation in such investor’s home jurisdiction
  • an association of high net-worth or sophisticated investors within the meaning of article 51 of the FPO
  • capable of being classified as a “professional client” within the meaning given in the glossary to the FCA Rules

Commentators have questioned whether this change, which will reduce the number of companies who are eligible for the Fund, was intended and, if it was, is appropriate in the context of the purpose and goals of the Fund. An urgent clarification has been raised with the Government and it remains to be seen whether this will be changed.

Are true startups eligible for the Fund?

One key part of the eligibility criteria, the requirement that the company has previously raised £250,000 in equity investment in the last 5 years, means that pure start ups who haven’t been through any funding rounds will be excluded.

A company is eligible if:

  • it is UK-incorporated – if your business is part of a corporate group, only the parent company is eligible
  • it has raised at least £250,000 in equity investment from third-party investors in the last 5 years
  • none of its shares are traded on a regulated market, multilateral trading facility or other listing venue
  • it was incorporated on or before 31 December 2019
  • at least one of the following is true:
  • half or more employees are UK-based; or
  • half or more revenues are from UK sales.

If the company is a member of a corporate group, only the ultimate parent company (if it is an unlisted UK registered company) is eligible to receive the loan.

Application Process

The application process is via an online portal and must be led by an investor who plans to invest at least £12,500. A solicitor must be appointed as part of the arrangement to facilitate the payment of the loan.

According to British Business Bank, which has been tasked with administering the Fund, on receipt of applications they will be assessed, and funds will be allocated on a first come first served basis. If your application is successful, then the process will take a minimum of 21 days from the date of application.

Act quickly, as deadline for applications is 30th September 2020.

For advice on the Future Fund or any aspects of funding please contact:

Jon Davage

t: 0161 827 4618

e: jon.davage@bermans.co.uk

w: Web Profile

 

ENDS.

 

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