Following the publication of initial details earlier in the year, the Future Fund was officially launched by the UK government on May 20. A new initiative targeting new businesses and start-ups struggling to access other types of government relief, the Future Fund is an investor-backed scheme open to all businesses that meet the eligibility criteria.
Investors taking part in the scheme can apply to match private investment from £125,000 to £5 million, with the investment being offered as a convertible loan agreement with minimal scope for negotiation. The only terms with which there is moderate room for negotiation is the headroom amount, valuation cap, interest rates and discounts. Though the terms of the Future Fund state that the interest rate must be no lower than 8% and the discount at least 20%.
In addition, the company applying for and subsequently receiving the convertible loan agreement is prohibited from using the proceeds for any of the following purposes:
- To repay borrowings from shareholders or related parties
- For distributions and payments such as dividends
- Bonuses are discretionary payments for the first 12 months
- Advisory or placement fees or bonuses to any corporate finance entity or investment bank
The government has outlined strict criteria for businesses interested in taking advantage of the Future Fund. Each of the following must be met for the organization to be considered eligible:
- The business applying under the scheme must have raised £250,000+ in equity over the past five years from third-party investors. This excludes workers, employees, founders or consultants of the company.
- The organization must be the ultimate parent company, if it is a member of a corporate group.
- The organization must not have any shares or securities listed on a recognized investment exchange, a multilateral trading facility, a regulated market or any similar listing venue.
- The business must be a UK incorporated limited company, incorporated no later than December 31, 2019.
- At least 50% of the organization’s employees must be UK-based and UK sales must account for a minimum of 50% of the company’s revenues.
Eligibility requirements have also been published for the solicitor taking part in the scheme as an intermediary between the business and the investor. Along with being a practicing UK regulated solicitor, the appointed individual must be permitted to hold client money and have a client account.
The Six-Step Application Process
Applying for funding under the new Future Fund takes place over a six-step process, as outlined below:
Step 1: Discussion between Investor(s) and the Company
The application begins with a discussion between the company and the investor, with regard to the size of the investment required/available and initial negotiation of agreed terms.
Step 2: Selection of Solicitor
The business will then need to nominate a legal representative, who will serve as an intermediary between the two parties throughout the process. Formal checks will be carried out to ensure that the solicitor meets all eligibility requirements, under the terms of the Future Fund.
Step 3: Formal appointment of Solicitor
When the Future Fund completes its checks and approves the solicitor, they will be formally appointed by the company.
Step 4: Application decided, and key documents requested
The full details of the application are then assessed by the Future Fund, at which point the application will be approved or declined. If approved, the business will need to issue a Director’s Certificate to the Future Fund confirming that:
- It has raised a minimum of £250,000 in third-party investments within the past five years.
- It has the authorization to enter into the CLA being applied for.
- It has obtained all required consents and waivers in respect to outstanding debts.
An undated but signed CLA must also be sent to the Future Fund by the company.
Step 5: Solicitor and Investors
The funds are subsequently transferred from the investor to the solicitor, who holds onto them securely onto the completion stage. Confirmation will be submitted to the Future Fund that the solicitor is now holding the monies agreed to be paid to the business.
Step 6: Completion
The solicitor will release the funds to the business only when the Future Fund confirms its receipt of the Director’s Certificate, Solicitor’s Confirmation and all required signatures on the CLA. The CLA will be signed by the Future Fund and sent to the solicitor, authorizing the release of the funds.
While the Future Fund initiative is likely to prove helpful for businesses struggling to access comparable sources of funding right now, it is important to acknowledge that it does not constitute free money. Terms, conditions and costs apply, as do strict qualification criteria as outlined by the government.
If you have any questions on any of the above or would like to discuss the potential benefits of the Future Fund in more detail, we’re standing by to take your call. Contact a member of the team at Aristone Solicitors anytime for an obligation-free consultation.