The Chancellor Announces the 'Future Fund'

Following criticism that high-growth, start-up enterprise was not sufficiently protected in the wake of the Coronavirus outbreak, the government yesterday announced a £250m ‘Future Fund’ as the latest addition to the range of business support measures.

Due to launch in May 2020 and run until the end of September 2020 in conjunction with the British Business Bank, the scheme is designed to encourage and maintain investment in the UK’s high potential businesses that could disappear as a result of the current financial climate.

The crux of the measure is that the Fund will provide government-backed convertible loans from £125k to £5m subject to a minimum matching investment by private investors.

Eligible businesses must:

• Be an unlisted UK company
• Be able to attract third-party investment
• Have previously raised at least £250k of third-party investment in the past 5 years

The finer details of the scheme are yet to be confirmed and, as would be expected with arrangements of this type, there are a number of conditions around conversion and similar that should be understood and considered.

We’d recommend review of these in their entirety by visiting: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/880119/Convertible_Loan_Key_Terms_-__Final_Version_.pdf)

However a summary of the key points is as follows:

• The loan will mature after 36 months.
• There is no cap on the amount the third-party investor can invest.
• The funding must be used for working capital purposes (and not repay borrowings, pay dividends or bonuses or any fees to external advisers in respect of receipt of this funding).
• The loan will automatically convert to equity on the company's next qualifying funding round at a minimum conversion discount of 20% (higher if agreed by the matched third-party investors).
• There is no valuation cap at the point the loan converts to equity.
• The loan will convert to the most senior class of shares in the company.
• The loan to carry a minimum non-compound interest rate of 8% per annum to be paid on maturity of the loan (higher if agreed between the company and the matched investors).
• The company will need to provide limited warranties and covenants to the government both during the loan and equity phases.

Clearly this scheme will only apply to a certain number of businesses but could be extremely helpful to those it is relevant to. Please do contact us if you would like to discuss the scheme or its conditions further and we’ll do all we can to help.

If you have any questions regarding this or anything else please get in touch, and for regular updates, announcements and news please check our website (www.dsaprospect.co.uk) and make sure you’re following our LinkedIn page: https://www.linkedin.com/company/dsa-prospect-ltd