Following the announcement of improvements to the CBILS at the beginning of the month, the Government has published plans to launch its ‘Future Fund’, through which it will make an initial £250million of investment in ‘innovative’ UK-based companies. This scheme is part of the Government’s latest £1.25bn increase to its bail-out plan which includes provision of a further £750m in grants and loans for smaller business focussed on research and development.

The funding, to be made available through the British Business Bank, will be invested in amounts ranging from £125,000 to £5,000,000 and will be in the form of convertible loan notes.  

The main eligibility criteria for a Future Fund matched investment are:

• the business is UK-based;

• the business has previously raised £250,000 or more in third party equity investment in the last five years; and
  

• the business can find an equivalent amount of funding from third party investors and/or institutions.

The Future Fund will not invest in:

• companies which have shares publicly listed (for example on the London Stock Exchange’s main or AIM markets); or

• subsidiary companies within a group (although a parent company of a group which meets the other criteria may apply for an investment).

Further terms of a Future Fund investment are:

• a maximum loan term of three years;

• interest at 8% p/a (or higher if agreed);

• funds must be used for working capital purposes, not to repay existing debt or make dividend or bonus payments;

• funds must not be used to pay advisory fees (presumably in connection with the third party matched-funding but this is currently unclear);

• funds convert to equity upon the next “qualifying funding round” (defined broadly as a subsequent raise of an amount equal to (or higher than) that raised at the same time as the Future Fund investment);

• the ‘conversion price’ will be calculated by applying a 20% discount to the price per share paid by other investors in the “qualifying funding round”;

• the company must provide customary warranties to the Future Fund;

• the Government will be provided with certain information rights, again presumably on a customary basis as with any material investor; and

• other terms which require further detail, such as a most favoured nations position in relation to future convertible equity, a negative pledge in relation to future borrowing, unspecified but ‘limited’ corporate governance rights and a covenant as to fair and equal treatment of the Government as a debt/equity holder.

Predictably, the Government has indicated that its Future Fund may not wish to remain in the position of investor in the long (or even medium) term and will insist on an ability to freely transfer its debt and any equity to any institution acquiring ten or more of the Government’s investments from the Future Fund.

For many venture-backed businesses the critical factor here is likely to be sourcing a third-party investor (against whose investment the Future Fund’s investment might be matched) and a fear that those third-party investors who are willing to make such an investment may take the opportunity to leverage their turnkey position to achieve otherwise unusually favourable terms.

If you would like to discuss Future Fund investment, other third-party investment or you are in need of advice on investment terms generally, please contact the author or your usual contact within the Corporate team.

Further Information

Link to the Government’s high level guidance can be found here with a little more detail added here.

As well as our guidance to the CBILS linked above (and here), the British Business Bank also has CBILS FAQs which can be found here.

We consider it likely that this scheme may be adjusted from time to time - in particular the list of accredited lenders is likely to be extended - so please do return to those website pages for updates.

You can read our article on The COVID-19 Corporate Financing Facility, providing financial support for larger firms here.

You can read our article on the Coronavirus Large Business Interruption Loan Scheme (CLBILS) here.