COVID-19: Update To Future Fund Eligibility

By Sam Pearse



As previously reported (see here), the UK Government launched the Future Fund on 20 May, with the intention of providing financial support to British start-ups. It has proved to be popular, with over £320m of convertible loans to 322 businesses having been approved.

One of the criteria for accessing the Future Fund was that the applicant had to be a UK-incorporated company or a group with a UK ultimate holding company. The UK Treasury has now elected to expand the programme to include certain overseas companies.

It is not uncommon for British start-up businesses to incorporate outside of the UK, or put a non-UK holding company in place, in order to be eligible for local funding programmes. For example, European businesses may incorporate in the US in order to be more attractive to investors in the US and being able to participate in US accelerator programmes. After all, the US seed and venture capital market has much deeper pockets than its European equivalents.

In order to address this, the British Business Bank has announced the expansion of the Future Fund in order to:

accommodate businesses that contribute significantly to the UK economy, but do not have their parent company based in the UK because they participated in a non-UK based accelerator programme”.

Revised eligibility – overview

A non-UK ultimate parent company (“Company”) may apply for participation in the Future Fund if it satisfies the following criteria (differences from the criteria for UK companies/groups are shown in bold italics):

    1. the Company must have raised at least £250,000 (calculated by reference to the prevailing exchange rate at the time of each investment) in equity from third-party investors in previous funding rounds in the last five years (from 1 April 2015 to 19 April 2020, inclusive);
    2. if the Company is a member of a corporate group, it must be the ultimate parent company;
    3. the Company is the equivalent of a UK limited company in the relevant non-UK jurisdiction (i.e. sole traders, partnerships, LLPs and unincorporated bodies are not eligible);
    4. 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;
    5. it participated in an Accelerator Programme, on or before 19 April 2020, and participation in the Accelerator mandated incorporation of the ultimate parent company in a non-UK jurisdiction;
    6. if the Group (or any entity within the Group) was in existence before the Company was incorporated, the ultimate parent company of the Group (or the sole entity, if applicable) must have been incorporated in the UK:
    7. it is the ultimate parent company of a group which contains at least one subsidiary operating company incorporated in the UK on or before 31 December 2019;
    8. the Company received investment from the Accelerator Programme on or before 19 April 2020; and
    9. the Company is the ultimate parent company of a Group which has:
  • half or more of its employees based in the UK; or
  • half or more of its revenues from UK sales,

(which will be evidenced by submitting a copy of the group structure containing details of employees as at that date and revenue by group company, certified by a director of the Company).

Accelerator Programme

The term ‘Accelerator Programme’ is separately defined. The programme must have been:

“a selective, fixed-term, cohort-based programme for early stage companies, which provides seed or venture capital investment and access to mentorship and other professional support.”

Specifically, the definition states the Accelerator Programme must have been subject to an open and competitive process and that a condition for access to the programme was that the ultimate parent company of the group be incorporated in a non-UK jurisdiction.

Evidence that the relevant accelerator programme meets that definition will need to be submitted at the applicate stage,

At present it does not appear that a list of qualifying Accelerator Programmes will be provided.

General discretion

The British Business Bank and the UK Government is given wide discretion on approvals, with applications assessed against “UK Government investment standards on specific jurisdictions by reference to factors such as sanctions, tax transparency, and the cost and complexity of implementation”. The UK Government also reserves the right to determine applications considering public policy and the proper use of public finances.

Subject to those overarching statements, there are no specifically excluded jurisdictions in which the Company may be incorporated.

Convertible Loan Agreement

The Future Fund utilises a standard from convertible loan agreement, with a few terms available for negotiation within certain parameters. Jurisdiction specific CLAs will be used for non-UK parent companies.

For More Information

For more information about the Future Fund please do not hesitate to get in contact with Sam Pearse or your usual Duane Morris advisor.

© 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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