On Wednesday 20 May the Government opened the gates to enable online applications for Future Fund Convertible Loan Notes. The Government through its partner British Business Bank (and its specific vehicle UK FF Nominees Limited) has formally opened its portal to unlock the £250m Future Fund aimed at helping start-up, scale-up and venture-backed businesses which have been impacted negatively by coronavirus.

Since the original Term Sheet was announced a month ago, the Government has listened and made some subtle clarifications and tweaks to the Future Fund. The top 3 changes are these:

  1. Applications are launched and made by your lead investor (who does not need to be the biggest investor, but must have at least £12,500 of “skin in the game” to apply as the lead);
  2. There is a greater role for solicitors than first imagined – companies MUST appoint one; and
  3. The system will work on a first-come, first-served basis, rather than selection by sector, size or other discerning feature.

To understand the Future Fund and whether your business is eligible to apply, we have answered some frequently asked questions.

A. Is Future Fund designed as a funding round in its own right?

Not really, it is intended to be unsecured bridge funding – which acts as a support mechanism or “extra runway” to take an innovative company from its previous funding round to its next funding round. The Term Sheet said: “The Government shall make unsecured bridge funding available alongside other private third-party matched investor(s). The loan shall constitute no more than 50% of the bridge funding being provided to the company, with the remaining amount provided by matched investor(s).”

B. Is the loan “soft” money from Government?

Certainly not. The terms are commercial to say the least and far from “soft”. The headline terms are that the Future Fund CLN attracts an 8% interest rate, with a (minimum) 20% discounted price-point for noteholders when their Future Fund monies convert into shares, and that if the loan is repaid, it shall attract a premium for the Government and matched investor.

C. Use of the Future Fund monies

There is a blacklist and a whitelist for the purposes the Future Fund monies can be put to. On the whitelist will be any form of working capital such as accommodation and lease payments, research and development work, software and coding, wages for employees. On the blacklist are debt payments such as bank borrowings, making dividends or bonus payments, advisory fees and placement fees to any external advisers.

D. Eligibility – for the Investee Company, for its past fund-raise, and its Matched Future Fund Funder

This is the most contentious area of the Future Fund terms thus far. There are a number of grey areas which conversations with clients and applicants are exposing. At the Investee Company-level, it will be eligible if:

  • it is UK-incorporated; if the company is part of a corporate group, only the parent company is eligible
  • it has raised at least £250,000 in equity investment from third-party investors in the last 5 years
  • none of its shares are traded on a regulated market, multilateral trading facility or other listing venue
  • it was incorporated on or before 31 December 2019
  • at least one of the following is true:
  • half or more employees are UK-based
  • half or more revenues are from UK sales

For further details on the eligibility of the past third-party fund-raise required (at least £250k), and on the heavy-eligibility list applicable to your Matched Future Fund Funder, consult this link.

E. Essential role to appoint a solicitor

Lawyers are seen as essential for the roll-out, application and transfer of monies from the future fund to applicants. We at Keystone have identified 5 key tasks for lawyers:

Your nominated Future Fund Solicitor will be required to help with

  1. The British Business Bank standard documentation: the Solicitors Confirmation Letter, the Company’s Director’s Certificate, and the terms of the Convertible Loan Note itself — which is bespoke to the Future Fund terms and purposes.
  2. Checking articles of association, shareholders’ agreement, and any pre-secured debt financing to check there are no pre-existing company controls and consents which need to be navigated.
  3. Guidance with the Government’s loan note (the top clauses to understand — including the fascinating term “Headroom”).
  4. Tailored legal documentation for the investee Company: shareholder resolutions, investor consent from your current investors (if necessary), board minutes to confirm the corporate benefit of the Future Fund loans and loan note certificates).
  5. Helping companies to take receipt of the Loans via Keystone Law’s client account.

Interested companies should act quickly and start their application through the lead investor as soon as possible. This Scheme is proving to be incredibly popular…

For further information please contact:

This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.