On Monday 18 May the Government released further details on the Future Fund and applications opened at 8.30am on 20 May.
The terms of the fund are largely as we expected and as set out in our briefing note here, and we set out additional information regarding the terms and application process below.
Who is eligible to receive funding?
In order to qualify for funding, the company must be able to show the following:
- it has raised equity of at least £250,000 in the last five years (1 April 2015 to 19 April 2020) from third-party investors
- it is the ultimate parent company if part of a group
- it is unlisted
- it is UK incorporated and was incorporated prior to 1 December 2019
- either half or more of the employees are UK based, or half or more of its revenue comes from UK sale
Who can invest alongside the Future Fund?
Investors must meet certain eligibility criteria as set out here. If an investor does not already qualify as an 'investment professional', they may need to self-certify as a high net worth individual.
What can the money be used for?
The funding cannot be used to repay shareholder or related party, dividends, bonuses or other discretionary payments for 12 months, or pay advisory, placement or similar corporate finance fees in relation to the Future Fund transaction.
Is it SEIS/EIS compatible?
Convertible loans are not compatible with SEIS/EIS tax relief and the Future Fund loan is no different. Since the Government released further details regarding the Future Fund, it is clear that the terms of the documents are standard and non-negotiated, so that no matched funding will be received unless the investment is made on exactly the same terms as the Future Fund prescribes.
How does the application process work?
The process is investor-led. A lead investor should be identified to make the application on behalf of themselves and the other investors in respect of the company hoping to receive funding, which can be done here. The application is not expected to take long to complete but the lead investor will need certain information to hand regarding the identity of the investors and the funds they are committing. Once the lead investor completes the application, the relevant company will have the chance to confirm that it is happy for the application to be submitted.
What can be negotiated?
The interest rate and conversion discount must not be set lower than 8% and 20% respectively, but can be higher if that has been agreed with third-party investors. There is also the option to have a 'headroom' amount which will allow the company to raise additional funds in the 90 days following completion, though any additional funds raised as part of the 'headroom' will not qualify for matched funding. Finally, a cap can be set on the price at which the loan will convert to equity in future – but if this isn't agreed, there will be no cap.
How long will it take to receive money under the scheme?
Applications are expected to take a minimum of 21 days to process from the initial application being submitted until funding is awarded. The Future Fund is currently limited to £250 million, and funds will be awarded on a first-come, first-served basis, so companies should act quickly if they would like to participate – though it is not yet clear how popular the scheme will be, or if the Government will extend it if demand is there.
What steps should you take now if you would like to benefit from the Future Fund?
Companies should check the eligibility criteria and that of proposed investors to confirm that they can take part in the scheme. They should then look to agree the negotiable terms with third parties and identify a lead investor to start the application process with details to hand of all the third parties committing funds. Companies should then consult with their existing shareholders to obtain the necessary approvals to approve the loans.