Covid-19: The Future Fund for Financing of Innovative UK Companies

By Sam Pearse


On 20 April the United Kingdom’s Chancellor of the Exchequer announced that the UK Government would launch the Future Fund as part of the British Business Bank Coronavirus Business Interruption Loan Scheme. The Future Fund is intended to provide support to the UK’s innovative companies with good potential, for which we might read start-ups, growth companies or emerging companies. The Future Fund was launched on 20 May. This alert summarises the scheme, eligibility and the application process.

What financing is available?

The Future Fund makes available £250 million for lending, although the amount will be kept under review. UK companies can apply for between £125,000 and £5 million in support, which would be offered on an at least matching basis by third party investors.

The financing is offered by way of an unsecured convertible loan, which is intended to convert to equity at the next funding round, on an exit or on maturity. The loan carries an interest rate of 8% and a conversion discount of 20%, meaning that the funding is not cheap. Slightly unusually for an instrument of this nature, the loan can become repayable on demand by the lender rather than the company. The Future Fund will have a right to put the loan or the shares back on the company “in the event that it is determined by the Future Fund (in its absolute discretion) that it would be prejudicial to the reputation of the Future Fund and/or the UK Government to continue holding its Loan and/or any shares in the capital of the Company”.

A final point to note is that the company must report quarterly to the Future Fund, which may be an unwelcome administrative burden for small companies.

What can the financing not be used for?

The financing provided under the scheme cannot be used to:

  • Repay loans to shareholders or their connected parties, other than repayment of existing borrowing pursuant to any bank or VC facilities.
  • Pay dividends or other distributions.
  • Pay any bonus or other discretionary payment to any employee, consultant or director for the period of 12 months following the date of advance. However, contractual amounts agreed prior to the launch of the scheme and paid in the ordinary course are exempted from this restriction.
  • Pay advisory or placement fees or bonuses to any corporate finance entity, investment bank or similar service provider on monies advanced by the Future Fund.

Who is eligible?

The scheme will be available to companies who meet the following criteria:

  • The company must be UK-incorporated. Where there is a group of companies only the parent company can be considered for eligibility.
  • The company must have raised at least £250,000 from third party investors from funding rounds closed in the last five years.
  • The funding must be at least matched by third parties.
  • Only private companies can apply i.e. the company’s shares cannot be listed on a regulated market, MTF, recognised investment exchange and/or similar market, exchange or listing venue.
  • The company must have been incorporated before 31 December 2019.
  • At least one the following must be true:
    • At least half of the employees are UK based.
    • At least half of the revenue are from UK sales.

For an investor to be able to take part, they must fall within certain categories of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005. Those are the typical categories including investment professionals, high net worths, sophisticated investors and professional clients.


The Future Fund will be open to applications until the end of September 2020.

The investor in the relevant company, or the lead investor if there is a consortium of investors, certifies that they meet the criteria and supplies key details regarding the investment. In turn, the company confirms the details and submits the application.

If the application is successful, all parties execute the template form of convertible loan agreement (available here Scheme Documentation). The funds are released, via a UK regulated solicitor permitted to hold client money, when certain conditions are satisfied.

For More Information

For more information about the Future Fund please do not hesitate to get in contact with Sam Pearse  or another member of the Duane Morris London Team.

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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