Exactly a month after the measure was first announced, the government has launched its ‘Future Fund’ initiative – a £250 million co-investment fund to provide capital to start-up businesses affected by the Coronavirus (COVID-19) pandemic.
The Future Fund will provide unsecured government loans ranging from £125,000 to £5 million to UK-based unlisted companies, subject to at least equal match funding from private investors. These loans can then be repaid or converted into equity at a discount at the next funding round or after three years.
It is hoped that the government has learnt its lessons from the delays in the release of funds from the CBILS loan scheme and will make the application and capital distribution mechanism for the Future Fund more streamlined. Perhaps surprisingly, then, the application process for the Fund is investor-led – in other words, an investor (or lead investor in a syndicate) rather than the company itself must apply for the funding. It seems to us that it may have been more efficient for the company to take the lead on the application, given it is likely to have better access to the necessary information.
A minimum 8% annual interest rate (non-compounding) will be applied to all government funding under the Future Fund, to be paid on maturity of the loan (the rate will be higher if a higher rate is agreed between the company and the matched investors) over a maximum 36 month period.
Companies seeking funding must meet a number of eligibility criteria and there are some restrictions on how the funds can be used – the British Business Bank website has full details.
It is encouraging to see that a broad range of investors are eligible to participate in the initiative, scotching concerns that it may be open only to VC funds. However, we suspect that the Fund’s incompatibility with the Enterprise Investment Scheme (EIS) may limit its appeal among investors. This is a missed opportunity – although it is possible that the government’s hands may have been tied by EU state aid rules. There is some suggestion that HMRC recognises the potential impact of this and is working to find a solution for future funding rounds – however, for the time being, there are no guarantees that the situation will change.
Despite some concerns, we believe that the Future Fund is a potentially useful source of additional capital for businesses that may not be able to benefit from any of the government’s other Coronavirus support measures, including CBILS.