01 Jul

A new national lockdown was announced on 1st November 2020- details can be found here.

On 19th April 2020, the Government announced its plans to launch in May a “Future Fund designed to ensure UK high-growth companies and startups across the UK receive enough investment to remain viable during the Coronavirus pandemic. 

The Future Fund scheme went live on 20th May 2020. 

On 30th June 2020, the Government announced an expansion of the scheme which has been successful in terms of take-up, with more than 320 companies benefitting from £320 million of Future Fund support. Under the scheme, early-stage, high-growth businesses from a diverse range of sectors can apply for a convertible loan of between £125,000 and £5 million to help them through the Coronavirus outbreak. 

The June 2020 changes to the scheme’s eligibility criteria means that UK companies who have participated in highly selective accelerator programmes and were required, as part of that programme, to have parent companies outside of the UK will now be able to apply for investment. 

Alongside the initial announcement in April, a separate initiate was launched to enable SMEs focusing on research and development to benefit from £750 million of grants and loans. The aggregate of the two schemes is a lifebelt to high growth and tech businesses worth of £1.25bn. More details below on both are below.

The scheme benefits companies that are more advanced in their growth and investment profiles. Early stage start-ups may not be able to take advantage of the Future Fund, given its terms, so these businesses will need to fall back on friends and family support and also on crowd-funding and angel investors, who provide such vital financing to the high-risk sector.

The Headline Terms for the Future Fund published gave guidance for the companies and the investor community, with further details to be published in time.

A summary of the terms is as follows:

Available Government Funding: £250,000,000

Delivery Bank: British Business Bank

Funding Mechanism: Convertible loans

Scheme Availability: End September 2020

Eligibile Businesses: 

  • Unlisted UK registered companies or if part of a group, their parent company
  • Must have raised at least £250,000 in aggregate from private investors over the last five years 
  • Must have a substantive economic presence in the UK
  • AML and KYC checks to be made

Matched Funding: The Government is to offer no more than 50% of unsecured bridge funding that is matched by third party investor(s)

Government Loan Size:  Minimum £125,000 : Maximum £5m

Use of Loan: Working capital purposes only : can't be for loan repayments/dividends/bonuses/advisory or placement fees

Conversion: Loan automatically converts into shares at the next "qualifying funding round" at a minimum conversion discount of 20% to the offered share price at that round. Other loan conversion events include with different terms (see details):

  • On a sale or IPO of the borrowing company
  • On maturity of the loan

"qualifying funding round": an amount raised in equity capital (excluding any shares issued on conversion of the bridge funding or to employees/consultants on exercise of any options) equal to at least the aggregate amount of the bridge funding

Type of Shares issued at loan conversion: the most senior class of shares in the company

Loan Interest: a minimum of 8% (non-compounding) until conversion

Term of Loan: 36 months

Warranties: to be limited to such matters such as ownership and compliance with laws and non-insolvency 

Covenants and Negative Pledge: The borrower will have to give a number of covenants to the lender and also agree not to permit the creation of any indebtedness that is senior to the loan other than any bona fide senior indebtedness from a person that is not an existing shareholder or matched investor

Share Transfer Rights of the Government:  it may transfer any of its shares without restriction:

  • to an institutional investor acquiring the Government’s interest in at least ten companies owned in respect of the Future Fund; and
  • within Government and to entities wholly owned by central government departments

Brief details of the new £750 million of grants and loans are:

  • 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;
  • £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.

By the publications team at: Contracts-Direct.com

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