SUPPORTING BUSINESS GROWTH
Updated 19 May 2020
The treasury has launched the Future Fund to provide support for the UK’s high growth start up businesses. The government will loan between £125,000 to £5m on a match funding basis. This is essentially a convertible loan meaning the funds issued will automatically convert to equity (at a 20% discount) over the maximum term of 36 months, subject to at least equal match funding from private investors.
Does your business rely on equity investment?
What do you need to know…
- The government will issue a loan between £125,000 and £5m as long as it is matched on a pound for pound basis by private equity investment
- The loan will automatically convert to the most senior equity (at a discount of 20%) at the next equity round
- If a qualifying round does not occur within the 36m maximum term, it is up to the government and the investors as to whether the loan is repaid at a premium or converted to equity at 20% discount
- If you issue more convertible debt after you have benefitted from the Future Fund, at more favourable terms, the governments terms have to be improved to match
- Future Fund will be open until Sept 2020 but will be reviewed at that point, as will the amount available in the Future Fund pot
- The scheme is not EIS eligible. However, investors who previously invested via SEIS or EIS will not have their eligibility affected by participating in via the Future Fund
- The headline terms setting out the main features expected to apply to the loans are attached at the bottom of this blog
- The scheme will be delivered in partnership with the British Business Bank
- The scheme will be open from 20 May 2020
Eligibility: the investor must fall within any of the following categories:
- an “investment professional” within the meaning given to that term in article 19 of the FPO
- a high net worth company, unincorporated associated or high value trust falling within article 49(2) of the FPO
- a “certified sophisticated investor” or a “self-certified sophisticated investor” within the meaning given in articles 50 and 50A respectively of the FPO
- a “certified high net worth individual” within the meaning of article 48 of the FPO
- an equivalent professional, high-net worth, institutional or sophisticated investor in accordance with applicable law and regulation in such investor’s home jurisdiction
- an association of high net-worth or sophisticated investors within the meaning of article 51 of the FPO
- capable of being classified as a “professional client” within the meaning given in the glossary to the FCA Rules
Note that all other investors must fall within one of the above categories in order for them to be eligible to invest in the convertible loan agreement. It is the responsibility of other investors to ensure they are eligible.
Eligibility criteria for the business
- Business is based in the UK, and have at least…
- Half or more employees based in UK or 50% of revenues derived from UK sales
- If part of a group, the qualifying business must be the ultimate parent company
- Must be an unlisted company
- Can attract the 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 5 years
This is an investor led scheme, with the lead investor being responsible for checking eligibility and making the application. Further details are available on the British Business Bank website. Essentially, it is a 3 part process:
- Lead investor applies by creating an account on the British Business Bank website
- Investor provides information regarding the investment and confirms eligibility
- Completed application is submitted and eligible business confirms it is happy for the application to be submitted
As ever, Adams O’Rourke are here if you need any further assistance regarding Covid-19 business support. Click here to get in touch with us.
Take care everyone!