On 20 April 2020, the UK Government announced its new Future Fund scheme, aimed at supporting UK businesses that are unable to access the Coronavirus Business Interruption Loan Scheme due to their lack of profitability and their need for ongoing external investment to support their growth.
The Future Fund scheme, which will be delivered in partnership with the British Business Bank, is intended to launch in May 2020 and will initially remain open until the end of September 2020, with an initial £250,000,000 being made available under the scheme.
Structure
Investments made by the Government pursuant to the Future Fund scheme are to be made by way of a convertible loan, which must at least be matched by loans made by private third party investors.
For any eligible company, the Government will invest between £125,000 and £5,000,000. The Government cannot take more than 50% of any funding round but there is no cap on the amount that can be invested by matched investors in the relevant financing (i.e. the Government can take less than 50%).
A more detailed summary of the terms of the loan that have been published by the Government can be found here.
Eligibility
The Future Fund scheme will be available to businesses that:
are unlisted UK registered companies that have a substantive economic presence in the UK;
have raised at least £250,000 in equity investment from third party investors in the past five years; and
can attract the equivalent match funding from third party private investors and institutions.
If a company is a member of a corporate group, only the ultimate parent company (if UK registered), is eligible to receive the loan.
There is currently little further detail published on the eligibility criteria but this will be made available in due course.
Comment
There has been much debate in recent weeks about how a scheme such as this might be structured, with the use of a co-investment model being widely anticipated to ensure taxpayers’ money is directed only to those businesses that private investors are themselves willing to support.
The apparent restriction of the scheme to convertible loans is notable, as we had anticipated that the scheme might also cover advance subscription financings, which are also commonly used to bridge companies to full priced rounds and have the added benefit of being eligible for SEIS and EIS tax relief (convertible loans do not share this benefit).
More broadly, while many of the headline terms do sit within market standards, there are certain protections that go beyond what we commonly see in bridge financings, particularly for earlier stage companies. Companies that are able to raise sufficient funds privately on more flexible terms, which will include some of the top performing companies in investors’ portfolios, might therefore decide not to access the scheme. This is arguably as it should be (many commentators have argued that companies able to access private capital should not be seeking the support of the taxpayer) but the risk to the Government is that, notwithstanding the co-investment model, the scheme is primarily used to prop up ailing businesses.
No scheme will ever be perfect, however, and this is a promising start by the Government, which has been keen to emphasise the importance of the technology and life sciences sectors to the UK’s economy. The detail provided in the headline terms is helpful and the Government has clearly spent time and effort to design a scheme that can work with the existing market.
The Government has stated that full details of the scheme will be published shortly and Withers tech will provide a further update when this becomes available.
