The Government announced on 19th April 2020 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:
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):
"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:
Brief details of the new £750 million of grants and loans are:
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