Overview
For additional guidance, please refer to Steptoe's COVID-19 Resource Center.
In partnership with the British Business Bank, the United Kingdom Government has provided an initial fund of £250 million for innovative and high growth UK companies as a means of support during the COVID-19 outbreak.
Companies will be able to obtain loans from £125,000 to £5 million per eligible company in the form of unsecured convertible loans (to be matched by private investors). Online applications for the Future Fund opened on May 20, 2020.
The key features of the Future Fund are set out below.
Eligibility for the Company
The company seeking the loan must:
- Be UK registered;
- Be unquoted – it does not have any of its shares or other securities listed on a regulated market, a recognized investment exchange and/or any other similar market, stock exchange or listing venue;
- Have raised at least £250,000 in equity investments for cash from third party investors in previous funding rounds in the last five years (between April 1, 2015 and April 19, 2020);
- Have been incorporated on or before December 31, 2019;
- If part of a group, be the ultimate parent company;
- Have a substantive economic presence in the UK having, at least half of its employees based in the UK or at least half of its revenues from UK sales; and
- Secure private third-party investment that at least matches the government support.
Eligibility for the Investor
In order for an investor to co-invest alongside the government, it must fall within the usual categories of persons to whom investment offers can be marketed under the Financial Services and Markets Act 2000 (FSMA), notably, "investment professionals," "high net worth individuals," "certified sophisticated investors" or "self-certified sophisticated investors," "high net worth companies," and others.
Purpose
The proceeds of the loan are strictly limited to working capital purposes and must not be used by the company for shareholder debt repayments, dividends or other distributions, bonus payments or other discretionary payment to employees, payment of any advisory or placement fees or any corporate finance-type bonuses.
Key terms of the Convertible Loans
The initial rate, the conversion discount, the headroom amount and the valuation cap can be varied within limits and will then apply to both the Future Fund and the private investors.
- Interest rate – minimum 8% per annum on non-compounding basis unless a higher rate is agreed by the company and the private investors. Interest is paid on repayment or conversion.
- Conversion – the loans will convert into shares in the company in certain circumstances which include an exit or a new round of funding.
- Repayment – if not previously converted, the loans are repayable together with a 100% redemption premium after three years. The company may not repay early without the agreement of the investors.
How Steptoe can Assist Investee Companies
We can assist a company seeking to raise finance by acting as the nominated company solicitor and assisting throughout the process, in the following manner:
- Review and explain the standard documentation, including the solicitors' confirmation letter, the director's certificate and the convertible loan note.
- Review of the constitutional documents of the investor company including any shareholder agreements, debt documents and any approvals that may be required from pre-existing arrangements.
- Preparation of the shareholder resolutions for the investor company including investor consents and board minutes.
- Receive the funds on behalf of the company from the British Business Bank.
Applications
The application process is investor-led. Applications therefore need to be initiated by the lead investor (or group of investors) via the online portal here. The lead investor must confirm total amount of funding to be raised and lawyers must be appointed as part of the application. The application process remains open until the end of September 2020.
Please refer to the portal for applications together with guidance and documentation. The British Business Bank website also includes helpful FAQs for investors and companies, both of which we suggest reading in full.
