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Future Fund – convertible loans for innovative companies

HM Treasury recently announced that “More start-ups and innovative firms will be able to apply for investment from the government’s Future Fund.”  This was due to a change in the eligibility requirements:

“UK companies who have participated in highly selective accelerator programmes [such as TechStars or Y-Combinator] and were required, as part of that programme, to have parent companies outside of the UK will now be able to apply for investment.”

Companies will still be required to meet the ‘substantive economic presence’ tests (that half or more employees are UK-based and/or half or more revenues are from UK sales) – see further below.

Below I set out some extracts from the headlines from the webpages for the Scheme and should also note that the amount lent under the scheme has already exceeded the sum initially allocated (£250m) and “Due to the popularity of the Fund, more funding is being made available… The scale of the scheme will be kept under review.”


Convertible loans of £125,000 to £5m; to match up to 100% of the amount provided by investor(s).

Investors and the Future Fund both invest using a convertible loan agreement, “which is predefined and cannot be negotiated.”

The loan:

  • Will mature after 36 months
  • Will have a minimum of 8% per annum (non-compounding) interest charge applied. This interest will be higher if the company and the investor(s) agree between themselves
  • Unlike a typical bank loan, the interest is not payable on a monthly basis and instead will accrue until the loan converts. At this point, the interest will either be repaid or convert in equity
  • Cannot be repaid early by the company other than with the agreement of all of the investors
  • Will convert into shares in the company in certain circumstances, including an exit or a new funding round

Investors and companies should note that the proceeds of the convertible loan agreement must not be used by the company to:

  • Repay any borrowings from a shareholder or a shareholder related party (other than the repayment of any borrowings pursuant to any bank or venture debt facilities)
  • Pay any dividends or other distributions
  • For a period of twelve months from the date of the relevant convertible loan agreement, make any bonus or other discretionary payment to any employee, consultant or director of the company other than as contracted prior to the date hereof and as paid by the company in the ordinary course of business
  • Pay any advisory or placement fees or bonuses to any corporate finance entity or investment bank or similar service provider on monies advanced by the Future Fund

The Government will initially make up to £250m available in total for the scheme. The Government will keep this amount under review. The scheme will initially be open until the end of September 2020


Both the Company and the Investor must met various eligibility criteria.  These include:

CompanyInvestor (all  of which must fall within one of the categories below)
Eligibility criteria
  • The company must have raised at least £250,000 in equity from third-party investors in previous funding rounds in the last five years (from 1 April 2015 to 19 April 2020, inclusive)
  • If the company is a member of a corporate group, it must be the ultimate parent company
  • The company does not have any of its shares or other securities listed on a regulated market, a multilateral trading facility, a recognised investment exchange and/or any other similar market, stock exchange or listing venue
  • The company must be a UK incorporated limited company or be eligible to apply as a non-UK parent company (see specific eligibility criteria in the FAQs for non-UK parent companies)
  •  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 sale


  • an “investment professional” within the meaning given to that term in article 19 of the FPO
  • a high net worth company, unincorporated associated or high value trust falling within article 49(2) of the FPO
  •  a “certified sophisticated investor” or a “self-certified sophisticated investor” within the meaning given in articles 50 and 50A respectively of the FPO
  •  a “certified high net worth individual” within the meaning of article 48 of the FPO
  • an equivalent professional, high-net worth, institutional or sophisticated investor in accordance with applicable law and regulation in such investor’s home jurisdiction
  •  an association of high net-worth or sophisticated investors within the meaning of article 51 of the FPO
  • capable of being classified as a “professional client” within the meaning given in the glossary to the FCA Rules



How to apply

The initial application appears to be 3 stage process:

  1. Create account – The investor, or lead investor of a group of investors, creates an account on the website to be able to sign in and make applications
  2. Check eligibility – The investor, or lead investor of a group of investors, provides information regarding the investment and confirms their eligibility
  3. Submit application – The investor, or lead investor of a group of investors, submits their applications in connection to an eligible company, and the company (statutory director or the company secretary) then confirms it is happy for the application to be submitted

There is more detail on the information required at Information for Investors webpage.

The distribution of funds for successful applications will be handled through a nominated company solicitor. It is the company’s responsibility to appoint a solicitor with the necessary right to practice and handle client monies (more details on the solicitors’ role and requirements can be found at webpage).

PKF Francis Clark

PKF Francis Clark’s Corporate Finance and Innovation and Technology Tax teams will be going through the details of the Future Fund over the coming days to add opinion and / or raise questions and to see how we best assist our clients interested in applying for funds from the scheme.

I anticipate that one of these opinion / commentary pieces may pick up on the interaction between investments made on the terms of the Future Fund with EIS and SEIS relief; a matter which I saw being commented on in the media over the past few days and features prominently in the FAQs.





FEATURING: Richard Wadman
Richard qualified as a Chartered Accountant with KPMG in 1993. Since 2006 he has worked in Corporate Finance, firstly with the predecessor firm in Truro… read more
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