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UK Government “Future Fund” – Welcome Financial Assistance for the Start-Up Sector 

by David Klass, Angus Duncan, James Comyn, Ferdinand Calice

Published: April, 2020

Submission: May, 2020


By way of extension to the existing array of financial support for business, the UK government has announced that a new fund will be launched in May aimed specifically at benefiting high-growth companies.

This will be by way of convertible loans to unlisted UK companies which have a “substantive economic presence” in the UK, provided they have raised at least £250,000 from investors over the past five years.

Full details of the scheme are due to be published shortly, but so far the only conditions for eligibility are those above.

The government funding will be required to be matched by third-party investors.

Other key features of the Future Fund are:

  • It will be made available May through September 2020.
  • The total funding to be made available by the government is £250m, to be delivered through the British Business Bank.
  • The funding will be unsecured and up to a maximum of £5m per company.
  • The funds will have to be used for working capital purposes only.
  • The maturity of the loan will be up to 36 months, with an interest rate of 8% (payable on maturity).

It is the conversion provisions which are currently the most detailed, and in summary these will be as follows:

  • The loan converts to equity (of the most senior class) on the subsequentqualifying funding roundat the subscription price payable in that funding round less the Discount Rate, being a minimum discount of 20% (or greater if a higher rate is agreed between the company and the matched investors).
  • A qualifying funding round is one where the company raises an amount in equity capital (excluding the shares issued on conversion) equal to at least the aggregate amount of the government/matched investor funding.
  • On a non-qualifying funding round, at the election of the holders of a majority of the principal amount held by the matched investors, the funding converts into equity at the Discount Rate to the price set by that funding round.
  • On a sale or IPO, the loan either (1) converts into equity at the discount rate to the price set by the most recent non-qualifying funding round or (2) is repaid with a 100% redemption premium—whichever provides a higher amount for the lenders.
  • On maturity, at the option of the holders of a majority of the principal amount held by the matched investors, the loan will either (1) be repaid with a 100% redemption premium, or (2) convert into equity at the Discount Rate to the price set by the most recent funding round.
  • The Discount Rate is not applied to the most recent non-qualifying funding round where that funding round took place prior to the issuance of the bridge funding. In such circumstances, the conversion price will not include a Discount Rate.
  • On conversion of the loan, only the principal (and not any accrued interest) will convert at the Discount Rate.

The UK government has had to steer a narrow course between supporting innovative businesses while avoiding the accusation that the new scheme could end up providing assistance to companies which objectively may not merit it. Hence the requirement for at least matched third-party funding, along with certain provisions which would perhaps be regarded as more investor-friendly than the market standard.

Further details are expected to appear in the coming days and it remains to be seen what the level of uptake will be among eligible companies. But the new scheme is likely to be warmly welcomed by the UK start-up sector, since a number of such companies may have been unable to benefit from the main government loan scheme for business introduced recently (with its various qualifying criteria).

We will provide further details as soon as these become available.



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