I knew the Future Fund would be popular but if the unconfirmed press reports are to be believed, on the first day alone somewhere in the region of £450m in matched funding was applied for meaning that £900m of funding for new businesses has been pledged.
Although I fully expect the pot to be increased due to demand, remember we have been told only £250m is in the pot on day 1……in theory at least, there isn’t enough money to go round.
I’ve had many conversations over the last couple of days with companies and investors alike looking for guidance. Following on from that, I thought it might be helpful to list what you need to know as a company or an investor.
If you are a company….
- You’ll need to BE QUICK – the £250m has already run out if the reports in the press are true. Applications continue to be made and I have clients gearing up to make applications today, next week and the week after. Applications are on a ‘first come, first served basis’.
- You must fulfil the qualification criteria which you can find here.
- The Company cannot make the application itself. The application process is INVESTOR LED so you need to agree with one of your investors to take the lead in making the application. Once the application is commenced, the investee company will be prompted to progress the application by submitting and confirming certain details.
- In general, the terms of the convertible loan are not up for negotiation – they are offered on a TAKE IT OR LEAVE IT See below for some exceptions.
- This money is EXPENSIVE:
- if you have to repay it (repayment is not at the Company’s discretion) then you must repay TWICE the amount you borrow; and
- the annual interest rate on the money is a HIGH 8%.
- The loan is convertible into shares. Conversion will be AUTOMATIC on maturity, a qualifying funding round or an exit (if the exit is large enough). Conversion may still take place on a non-qualifying funding round if the lenders (and in some instances, the Future Fund) elect for a conversion.
- The conversion price is DISCOUNTED (in most instances – see below for an exception).
- If private funding to be matched will be in tranches, you’ll need an application for EACH TRANCHE.
- If a private investor negotiates more onerous terms with the company, then the government and all other private investors will automatically be UPGRADED to these better terms.
- A director of the company will need to CERTIFY that the company qualifies – take advice on this. Any false certifications may lead to criminal liability
- Take care with GROUP structures – all previous qualifying funding and Future Fund funding must have gone into the top company in the group.
- To avoid paying the REDEMPTION PREMIUM of 100% of the amount borrowed you need to raise more than the amount borrowed in a funding round within 3 years
- If there is an exit (sale or IPO) or you reach maturity (3 years) without there first having been another funding round, then the conversion price will be that of the last round before 20 April 2020 WITHOUT A DISCOUNT.
- Don’t forget to check your existing debt/investment documents for any CONSENTS/WAIVERS The usual CORPORATE AUTHORITIES will also be required.
If you are an investor….
- Applications are INVESTOR-LED so you need to commence the application on behalf of the investee company. You don’t need to be the investor writing the biggest cheque but you need to invest at least £12,500.
- There is NO LIMIT to the number of applicant companies in which you can invest as a private investor or as the ‘Lead Investor’ for the purposes of making the application. You’ll need separate applications for each company though.
- Given the documents are mostly NON-NEGOTIABLE, they will need to fit within your existing investment criteria. There is some scope to AMEND the rolling interest rate attaching to the loans, the discounted conversion price and any valuation cap on conversion.
- The Maturity Date is FIXED.
- Forget about SEIS/EIS – this will disqualify you from previous SEIS/EIS investments and future ones (although the government says that it is going to change the rules). Whatever happens, co-investing with the Future Fund will mean you need to forego SEIS/EIS tax reliefs.
- You need to CERTIFY that you are outside the protection of certain financial services legislation (e.g you are a sophisticated investor or high net worth individual)
- The Future Fund IS compatible with crowd funding but the crowd funding platform will need to make the application.
The Government will publish weekly data on the take up of the loans, who is benefitting and where they are based. I will be watching the updates with interest and keeping you all updated!
Want to know more about the Future Fund or need help making an application, then I’d love to chat to you. Please register your interest for future updates by contacting me here.