The long awaited Futures Fund launched yesterday for applications via the British Business Bank website and is aimed at innovative UK companies with good potential that typically rely in equity investment but are currently affected by Covid-19.
We previously wrote a blog about this but it's good to finally have the detail about this so we can help clients who are considering going through this process.
What does the Futures Fund offer?
Some key facts about the fund:
- matched funding of up to 100% of the amount provided by investor(s) up to a maximum of £5m;
- application is investor-led which means that a lead investor makes the application to the British Business Bank;
- loan size is between £125k - £5m per company with the total fund size being £250 million;
- the funding is provided by a non-negotiable convertible loan note instrument with a minimum of 8% per annum non-compounding interest charge applied. The loan will mature after 36 months and the loan can only be repaid early if all investors agreed;
- the loans will convert into shares in the company in certain circumstances including an exit or a new funding round; and
- a solicitors firm like Harper Macleod plays a critical role in the process and must facilitate the completion process.
Challenges for utilising the Futures Fund
While we welcome the support that this fund offers to high growth and scale-up businesses, there are some challenges. For example, the fund is first-come first-served and with it currently being limited to £250m, this could mean that only 50 businesses are supported if they each apply for the full £5m. Further, with it being "investor" led, those companies that are backed by a very organised investor such as a VC with a large portfolio could make applications initially, leaving businesses that are backed by smaller angel syndicates or even individual angels left behind.
Another issue we foresee for Scotland, where there is a fantastically vibrant angel community, is that the Fund is not EIS qualifying as the funding is being provided by way of a convertible note, so the Fund may not be as attractive to investors given the lack of tax incentives.
Finally, a firm of solicitors such as Harper Macleod must be involved to carry out all AML checks on investors and to co-ordinate and facilitate completion, which will increase a solicitor's workload as all funding must come via their client account.
How we can help you with the Futures Fund
Having said all of this, government interventions will always have pros and cons and Harper Macleod is here to help businesses work through new and innovative funding sources like the Futures Fund. Areas where we can assist are as follows:
- we can help investors and companies with their application and considering the eligibility criteria, including ensuring that a company has all necessary certificates required for investors;
- corporate authorisations such as existing shareholders agreements and articles of association and other documents that will be required to be updated to ensure that the company can give the Futures Fund the undertakings it requires as regards the company being able to permit the issue and allotment of shares under the convertible loan note instrument;
- analysis and advice on the terms of the convertible loan note instrument. Even though it is a non-negotiable document, we would strongly advise clients to ensure that they fully understand the document and what it means for the business going forward; and
- facilitate and co-ordinate completion. Like I mention above, we will play a key role in concluding these deals and someone with experience of closing deals involving multiple investors will be key to doing this as smoothly as possible. We are required to carry out AML and KYC checks on all investors and are required to liaise with all investors, take their funds into our client account and liaise with the Futures Fund to release all funds. Having completed well over 3000 corporate and banking transactions in the last three years, we are well placed to help co-ordinate these transactions as syndicated deals are common place for us. Businesses with multiple existing shareholders and multiple new investors should expect to have higher costs due to the role of a solicitors firm here in co-ordinating everything and the potential risk/liability for the solicitors firm given their key role.
Get in touch
If you would like advice on any aspect of the Futures Fund in relation to your business or investment, please get in touch with a member of our team.