This week we saw the announcement of the final details of the £250m Future Fund eligibility criteria and guidance on the application process in advance of its opening for applications this Wednesday 20th May, offering Convertible Loan Notes from £125k – £5m alongside relevant third party equity investors.
The full Convertible Loan Note upon which all terms for a Future Fund investment are based, and all relevant criteria and documentation is also published and available on the British Business Bank website.
We very much appreciate the speed at which the Government and British Business Bank have brought the Future Fund to the market. This is clearly a very valuable initiative and will be an important support to the UK’s growth businesses especially those backed by VC. However, as already identified, the Government has despite their efforts, been unable to address the issues relating to eligibility of EIS based investment as match funding alongside the Convertible Loan Note, with State Aid remaining an obstacle to changing the rules.
This means that Angels and other early stage Investors wishing to use the EIS tax reliefs to further support their portfolio businesses are not eligible as match funders alongside this new Funding scheme. Nevertheless, the Minister has stated that the Government is seeking to ensure that investors who make co-investments using the Convertible Loan Note Scheme as match funders under the Future Fund scheme, foregoing their EIS tax reliefs on the investment, will not jeopardise their eligibility for tax relief for previous EIS investments or for future EIS based investments. The Convertible Loans scheme is therefore open to Angel investors and HNWs who do not want to access EIS tax reliefs to use the scheme. The Government has also confirmed that the Fund is open to Angel Investors from outside the UK who do not use the UK EIS scheme and wish to co-invest in a UK small business alongside the CLN based scheme.
The Scheme will be accessible through a new online portal opened on Wednesday 20th May which offers a simple application process. Applications will be assessed on a first come, first served basis, but there will be a queuing system. The key eligibility criterion will be the need to have already lined up the match funding when applying for the FF loan.
The process is investor-led and the platform does not match companies seeking funding with investors. This means that full details of the investors and notably the lead investor must be provided as well as the business accessing the loan and will need to be based on the agreed same terms in place for the Future Fund relating to the Convertible Loan Note and the appointed Solicitor for the company would also be involved in finalising the terms and conditions precedent. If an application is successful, the platform will generate documentation for the company and all investors to sign.
- Companies must be UK-incorporated and if part of a corporate group, only the parent company is eligible.
- Companies in receipt of the loans will be required to have previously raised at least £250k in equity investment from third party investors in the last five years.
- Only eligible companies that can attract at least 50% of third-party investment will receive funding.
- Companies cannot have any of their shares traded on a regulated market, multilateral trading facility or other listing venue.
- The company must have been incorporated on or before 31 December 2019
- At least one of the following must be true for the company:
- Half or more employees are UK based
- Half or more revenues are from UK sales
For those private investors in our community who are in a position to forego their EIS tax reliefs in order to access the match funding available through the Future Fund, UKBAA recommend that you act quickly to line up all the details necessary as set out in the guidance this week, notably to ensure that you have the relevant match funding in place so that you can speedily launch an application through the new Future Fund portal.
It is highly likely that there will be huge demand outstripping supply with loans open from £125k to £5m. However, the government recognise that this is a starting point and they may bring in additional funds depending on demand.
Credit source: UKBAA