The UK Government has announced further details about its Future Fund — and opened the scheme to applications this Wednesday.
The £500m fund, of which the Treasury will stump up £250m, will issue convertible loans to startups to help them weather the Covid-19 storm. Government loans could range from £125,000 to £5m, and will be managed by the British Business Bank (BBB). They will assess applications from potential investors and allocate funding on a first-come-first served basis, subject to meeting the eligibility criteria.
The Chancellor has told Parliament that “should applications exceed the initial £250m provided, he will be more than happy to extend the scheme”.
A fundamental tenet of the scheme is that the Governments £250m is matched by an equivalent figure from private investors. This is the same in each, so for applications for funds to be successful there must be an equivalent level of private investment as matched funding.
Lead investors will apply on behalf of startups (and other investors) via an online portal. Applications will be processed on a first-come, first-served basis. Investors not companies drive the process. Any private investor can provide the matched funding and can be an individual “angel investor”, venture capitalist or private equity house or a corporate backer, both outside as well as within the UK.
The BBB have said that applications will take a minimum of 21 days to process.
There has been some criticism that as the investment is in the form of convertible loan rather than straight equity, and for angel investors that it will not therefore qualify for EIS tax treatment, meaning it may not be attractive to individual investors used to claiming 30 income tax relief on their investment and the benefit of capital gains tax relief on disposal.
As such there has been some early criticism that the scheme has been shaped by the input of City VC’s who have the Treasury’s ear, rather than those of business angel networks and the crucial role they play within the investment landscape.
How do you apply for the Future Fund?
The portal on the BBB website https://bit.ly/BBBFutureFund includes details of the information that needs to be submitted as part of the application process and the scheme requires a solicitor on behalf of the company, amongst other things to handle funds being drawn-down and to ensure that appropriate corporate authorisations are in place.
Although no doubt welcome as support for early stage business it is important for companies o realise that the government’s investment is on commercial terms with the loan carrying a discount n redemption and significant redemption premium plus interest. It is therefore significantly more onerous than either CBILS or the Bounce Back Loan Schemes.
Contact the Corporate Team at DTM Legal if you are a business or investor who wants assistance with the detailed terms of the scheme and its possible implications for your business.