Announced by the Chancellor in April, the Future Fund match funding scheme launched this week offering convertible loans of between £125,000 and £5 million to innovative UK companies with good potential but who are facing financing difficulties due to COVID-19.
The Fund, which is subject to match-funding from private investors, provides Government loans to UK-based companies that typically rely on equity investment and are unable to access other government business support programmes because they are either pre-revenue or pre-profit. The Coronavirus Business Interruption Loan Scheme (CBILS) for example, is not suitable for many early stage businesses, so the Future Fund has been set up to fill this gap.
Eligible businesses must:
– be UK-registered private companies with a significant economic presence in the UK
– have raised at least £250,000 in private investment in the last five years (from 1 April 2015 to 19 April 2020 inclusive), and
– be in a position to secure enough private funding to match the Government’s investment.
The loans will convert to equity if not repaid.
The Government has also committed to amending the rules of the Enterprise Investment Scheme (EIS), which provides tax relief to investors in high growth firms, to protect Future Fund investors from losing relief on their previous investments made prior to any investment through the Future Fund. The EIS issue had been cited by investors as a major obstacle.
Chancellor, Rishi Sunak, originally committed an initial £250 million. However, within its first day, the Fund received over £450 million worth of applications from start-ups – meaning a total of £900million of capital was being pledged in less than 24 hours. This exceptional demand, which has dwarfed all expectation, suggests that the Future Fund, which is open until September and delivered in partnership with the British Business Bank, will almost certainly have to double capacity to £500 million, as Mr Sunak had promised.
Andy Pear, BM Advisory Partner, comments: “While the Future Fund has proved exceptionally popular, the biggest issue is that it is geared towards companies that are already invested in by private equity. Many businesses that have already raised funding within their friends and family circles, even if they are SEIS/EIS approved, probably wouldn’t meet the stringent criteria set out for investors. … The scheme won’t be suitable for everyone and is not cheap. While rules state that a successful applicant must have a UK-based parent company, many start-ups are backed by US-based ‘accelerator’ programmes and would therefore be deemed ineligible
Future Fund: Find out more and check eligibility here.