The government today announced its Future Fund, a scheme that will issue convertible loans between £125,000 and £5 million to innovative companies that are facing financing difficulties during the Covid-19 pandemic. It will initially make up to £250 million available in total funding, though this will be kept under review.
The fund comes as part of a new £1.25 billion support package for British businesses driving innovation and development, which includes £750 million in loans and grants to be made available for R&D focused SMEs. It has been developed by the Department for Business, Energy & Industrial Strategy and HM Treasury.
The Future Fund is designed to support businesses that rely on equity investment and are not covered by the Coronavirus Business Interruption Loan Scheme announced in March. By offering matched loans of up to £5 million, the scheme should effectively halve the burden of finding funding during this economically uncertain time.
Eligible startups and businesses will be able to apply for up to £5 million in bridge funding, automatically converting into equity on the company’s next qualifying funding round and repayable at a minimum interest rate of 8% per annum, depending upon the terms agreed with matched investors. Businesses must be able to match or exceed the loans with funding from private investors. There is no cap on how much aggregate bridge funding a business can raise.
Future Fund launches in May and will initially be open until September. The scheme will be delivered in partnership with the British Business Bank.
Is my startup eligible for the Future Fund?
You will be eligible to apply if your business:
- Is registered and based in the UK
- Is unlisted—shares aren’t available for public trading
- Has a substantive economic presence in the UK
- Can attract equivalent match funding from third-party private investors and institutions
- Has previously raised at least £250,000 in equity investment from third-party investors in the last five years
In cases where a business is part of a larger corporate group, only the parent company, if registered in the UK, will be able to apply for a loan.
Full eligibility criteria will come in due course.
What conditions apply to the funding?
- The bridge funding is to be used for working capital purposes only. It can’t be used to repay any borrowings, to pay out dividends or bonuses to staff, management, shareholders or consultants or to pay fees and bonuses to external advisers.
- Funding will automatically convert into equity on your company’s next qualifying funding round at a minimum conversion discount of 20% (higher if a higher rate is agreed with matched investors).
- The government will receive at least 8% non-compounding interest per annum to be paid on maturity of the loan.
- Loans will mature after a maximum of 36 months.
- The government is entitled to transfer the loan and any shares to an institutional investor which is acquiring a portfolio of the government’s interest in at least 10 Future Fund companies. It can also transfer shares across government and to entities wholly owned by central government departments.
More information will become available as the scheme gets ready to launch. In the meantime, the government has shared its Future Fund Headline Terms on GOV.UK.