The British Business Bank has announced further details about the Future Fund, a co-investment fund that will match private investments in high-growth UK companies with Government-backed convertible loan notes. The Government has made £250 million available for the Future Fund and will keep this amount under review.
Our initial note on the Future Fund (which sets out the terms of the Future Fund and the eligibility criteria for companies wishing to participate) can be found here.
The updated terms of the Future Fund are as follows:
- investors will not be able to claim EIS relief if they wish to lend money to a company alongside the Future Fund; and
- Future Fund monies will not impact the eligibility of previous EIS investments received by a company if the Future Fund convertible loan note converts into equity. If the notes are instead redeemed for cash, the Government has indicated that it will make changes to the EIS rules to clarify that previous EIS investments will not be prejudiced.
- each investor must meet specified criteria which are based on FCA rules (i.e. an investor must be an “investment professional”, or a “certified sophisticated investor” or a “certified high net worth individual”, etc);
- the investor can be an existing shareholder or a non-executive or investment director of the company, but he/she cannot be a founder, employee, worker or consultant of the company or any connected party of such party; and
- the lead investor (who does not need to put in all/the majority of the matched funds) must invest at least £12,500.
― Eligibility – to qualify for the Future Fund the company must either (i) employ at least half of its employees in the UK, or (ii) generate at least half of its revenue from UK sales.
― Negotiability – the convertible loan note instrument is a fixed, standard form document, however certain terms can be negotiated in the investors’ interest (i.e. the interest rate must be at least 8% but could be higher if agreed with the investor).
― Duration – the convertible loan note will mature after 36 months (previously it was a “maximum” of 36 months) and can be repaid early with the agreement of all investors (other than the Government) who have been issued with such convertible loan notes.
Further guidance has also been released as to how a company can apply for the Future Fund:
― When can a company apply? – we understand that the Future Fund will open on Wednesday 20th May and shall initially be open until the end of September 2020. Applications will be processed on a “first come, first served” basis.
― How does a company apply? – the company’s lead investor is to start the application on the company’s behalf via a portal created by the British Business Bank.Once it has done so, the company can progress the application.
― When will a company receive money from the Future Fund? – the British Business Bank expects that it will take at least 21 days from the initial application to the funding being awarded.
― What role does the company’s lawyer play? – the company’s lawyer is to hold the matched funds from the investors and will be involved in coordinating the receipt of monies from the British Business Bank for the company. They will also help the company applying with the relevant paperwork.
― What KYC will be carried out? – the British Business Bank will require specified information about the company (most of which should be readily available), but some of which may require the assistance of investors (i.e. a copy of an ownership structure chart or supporting documentation showing all ultimate beneficial owners owning 25% or more of the company as well as all intermediary beneficial owners).
― Can previous investments apply? – the short answer is no, as to apply for the Future Fund the company’s lawyer has to actually receive investment monies from the investors. However, we think it is possible that if the company has previously agreed to a tranched investment, those tranches that have not yet been received by the company could (if the investor so agrees) effectively be cancelled, and the investor could instead apply these monies to the Future Fund (subject to meeting the eligibility criteria, etc).
Further information about the Future Fund can be found here.
Please do get in touch with your contact at CMS should you wish to discuss the Future Fund further.