Future Fund – a matched funding opportunity for innovative businesses

On May 20, the government launched another initiative designed to help small and medium-sized businesses against the effects of Covid-19, the Future Fund. The fund is designed for businesses that are dependent to at least some extent on equity investment – one of the qualification requirements is that the recipient business must have raised at least £250,000 in equity investment from independent investors between 1 April 2015 and 19 April 2020. If you pass that hurdle, then you may be eligible, in which case the fund will match private investment to a sum of between £125,000 and £5m. In order to benefit from this, you’ll have to have one or more outside investors interested in lending on the same terms as the Future Fund. As it is an unsecured loan, the risk for any investor is relatively high even the interest rate may make up for that.

 

Key points include:

 

  • Funding is by way of loan.
  • The investment is not to be used to repay borrowings, pay dividends or bonuses, or pay advisory fees.
  • 8% interest (can be more, but not less so far as the fund is concerned). The company doesn’t pay interest over the course of the loan, but it gets wrapped up to be repaid or converted into shares at the end of the term.
  • The loan is for three years, and cannot be repaid early, so there will definitely be an interest of at least 24% (it’s non-compound interest).
  • At the end of that term, the loan plus interest must either be repaid or it will convert into shares.
  • The loan will also convert into shares on an earlier exit or a new funding round.
  • Conversion is at a discount of 20% or more to the last invested share price or the new investment round share price.
  • There’s a set form of loan note, which cannot be negotiated either by the company taking the investment or by the other investors.

 

The scheme is currently slated to be open only until September. We’re already advising a couple of businesses looking to close new investment rounds using this initiative, so it may prove popular.

 

If Future Fund is not applicable to your business, there are still other government-backed sources of loan funding, such as the Coronavirus Business Interruption Loan Scheme (up to £5m for up to 6 years) and the Bounce Back Loan Scheme. If your business only needs a small amount to ride it over for a while, the Bounce Back Loan seems a good option, with up to £50,000 available for a term of up to 6 years, at an interest rate of just 2.5%, guaranteed by the government, and with no need for the bank to seek personal guarantees from the business owners or directors.

 

If you want to discuss the Future Fund or any other investment round for your business, please contact Justin Ellis on 0203 9622 230 or at info@ilaw.co.uk.