Posted Thursday 7th May 2020
Updated Wednesday 20th May 2020
The new Future Fund support package, to assist early stage companies who are being severely impacted by the current COVID-19 crisis, was launched by the government, in partnership with the British Business Bank, on Wednesday 20 May.
This is in addition to the Bounce Back Loan and CBILS and very much targeted at companies who are early stage or in a scale up phase but not yet break even.
It has been confirmed that the scheme is not compatible with EIS relief, with the shares that will arise on conversion being ineligible for EIS relief. Furthermore, as it currently stands, any lender who receives shares on conversion will not be eligible for EIS relief on any future equity investments made by them into the company; this will not prejudice any existing EIS shares, however.
Standard form documents have been provided, and some of the missing details have been clarified. This note has been updated to reflect this additional information.
It is anticipated that demand for the Future Fund will be high and, given that the Government has capped the maximum amount available, we recommend that companies move quickly, starting discussions with matching investors without delay, to ensure that they don’t miss out on this important support package. The current guidance suggests that applications will be processed on a first come first served basis.
Please contact any member of our Corporate and Commercial team for help if you are looking to take advantage of the Future Fund.
The Key characteristics:
- The Government has pledged a total amount of up to £250,000,000.
- The minimum amount of investment is £125,000 and the maximum amount is £5,000,000.
- The funds invested under the Future Fund must at least be matched by other third party investors.
- To be eligible the applicant must be a U.K. based registered private company that:
- was incorporated on or before 31 December 2019;
- is the ultimate parent company;
- has raised at least £250,000 in private investment in the last five years;
- has a substantive economic presence in the UK (i.e. at least 50% of employees and/or at least 50% of revenue in the UK); and
- has passed, money laundering, ‘know your customer’ and customer fraud checks.
- each investor must fall within any of the following:
- an “investment professional” within the meaning of art 19 of The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (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; or
- capable of being classified as a “professional client”, as defined in the FCA Rules.
- Investment will be by way of a convertible loan agreement (a loan which can be converted into shares) with headline terms being:
Convertible Loan Terms
- a maximum term of 36 months;
- an interest rate of 8% per annum (simple rather than compound interest) – this can be higher but not lower
- the loans will convert at a minimum of 20% to the share price on the triggering investment round;
- the loans will be unsecured;
- the loan can only be used for working capital purposes (re cannot be used to repay existing debts, payment of dividends or bonuses, or to pay any financial advisory fees);
- certain covenants and warranties will need to be given by the company to the lenders;
- no other debt funding can be put in place which is senior to the loan notes unless its genuine third party debt not from a matching investor;
a redemption premium of 100% if the loan is repaid at the end of the term and not converted (meaning that the company would have to repay double the amount borrowed).
- upon a qualifying funding round (any further investment within the term for an amount equal to at least the aggregate amount invested by the Future Fund and the matching investors), the total loan will automatically convert into shares at a minimum conversion discount of 20% to the price set at that round with a company repayment right in respect of the accrued interest;
- the conversion shares will be the most senior class of shares in terms of rights and returns;
- the conversion shares issued will benefit from the same rights as any newer class of shares issued at later funding rounds.
This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.
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