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Future Fund: Breakthrough

The Future Fund last year was closely watched by both investors and companies seeking investment. It delivered more than £1.1 billion in convertible loans to over 1,140 applicants. Quite a feat given the speed at which it was rolled out!

What is the Future Fund:  Breakthrough?

The new Future Fund: Breakthrough (“FF Breakthrough”) plugs the gap that the Future Fund left when it closed for applications last year.

FF Breakthrough is now open for applications to help high-growth, research and development intensive companies.

The UK programme will deliver £375 million of government funding via British Patient Capital (“BPC”), the commercial subsidiary of the British Business Bank.

How does the scheme work?

Under the scheme, BPC will make equity co-investments with private investors in growing research and development intensive companies within breakthrough technology sectors.

Due to high research and developments costs, breakthrough technology companies require more capital than other companies in order to assist the later stages of their development. These ‘breakthrough’ industries include quantum computing, life sciences and cleantech. Companies within this sector accelerate the deployment of innovative technologies such as life-saving medicine and technologies that support the UK’s transition to net zero. This will subsequently help build the UK economy, create highly skilled jobs and strengthen the UK’s status as a leader in technology and innovation. Significantly, it is estimated that a 1% growth in these firms could potentially grow the UK economy by £38 billion.

The government will support fast-growing firms looking to raise at least £30 million of investment but FF Breakthrough will only pick up a maximum of 30% of that. In other words, if you want to seek investment from FF Breakthrough, you’ll need to make sure that you have private investors to put in at least £21 million.  This high threshold will leave a lot of deserving companies unable to meet the criteria to apply. 

As with the Future Fund of last year, the FF Breakthrough scheme is investor-led so companies wishing to apply will need to secure a lead investor who will make the application on the company’s behalf. The lead investor can be a new or existing investor.  That investor will be required to share an investment paper with BPC containing the rationale for the investment along with any legal and financial due diligence reports prepared as part of the investment. The lead investor themselves will also be subject to reputation and customer due diligence checks. Although the lead investor does not have to be the largest investor in the round, they will be expected to contribute a significant amount to the total round. From the details released so far, it seems that the application process is more in-depth than for the Future Fund and so companies and their investors will need to be prepared for this. 

Criteria for lead investor

FF: Breakthrough will require a lead investor to meet one of the following criteria:

  • The fund is managed or advised by a firm authorised by the Financial Conduct Authority (FCA) who’s private sector investment makes up more than 50 per cent of the total fund size and who is currently managing an active fund more than £100 million. Furthermore, the fund must have a written investment strategy that aligns with the Future Fund: Breakthrough strategy and the fund must have raised capital from at least three independent Limited Partnerships.
  • The fund or investment vehicle has an appropriate investment strategy which is managed or advised by a fund manager who has applied to and obtained an investment from a member of the British Business Bank group.
  • Any other equivalent investment vehicles such as those with more than £100 million of investment capital, an appropriate investment strategy and a broad range of independent investors provided these have been approved by the Future Fund: Breakthrough.

Criteria for investee company 

FF: Breakthrough will require the company receiving the investment to meet the following criteria:

  • The company should be UK incorporated with significant UK operations. This means at least half of its overall employment base and research employees must be based in the UK. The company will be carrying out research and development activity in the UK by meeting all three of the following criteria:
    • Research and development must have been at least ten per cent of the operational cost base on average over the last three years or at least 15 per cent in one of the past three years.
    • The company is developing intellectual property in the UK which is expected to be the main source of revenue resource.
    • The company intends that 20 per cent or more of their employees will be carrying out research for at least three years from the date of the investment. This is in roles that require a master’s degree or higher.
  • In the last 5 years prior to the Future Fund: Breakthrough investment, the company must have raised at least £5 million of equity investment from third-party investors in previous funding rounds.
  • The company must be raising a minimum investment round size of £30 million.

Eligible investors can apply via the British Patient Capital website. www.britishpatientcapital.co.uk/future-fund-breakthrough/future-fund-breakthrough-application/

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