The Future Fund

Announced on 20 April 2020, the Future Fund is a £500m support package targeted at innovative UK businesses. An initial commitment of £250m will be unlocked by private investment on a matched funding basis for businesses that typically rely on equity investment.

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Zach Francis, Jankee Patel
Published: 07 Oct 2020 Updated: 13 Apr 2023

Open since May 2020, the Future Fund is a match funding support package targeted at innovative UK businesses that typically need equity investment due to their growth stage. The programme runs until 30th November for those businesses who can attract third party investment.

Cash Fund


The Future Fund is looking to serve the companies that would typically be relying on equity investment to fund their growth.

These early stage companies may have a strong future but have been unable to access other government business support debt programmes because they are either pre-revenue or pre-profit and are currently incurring losses and using cash. The fund bridges the timing gap to when the business may have greater funding options or there is an event such as an IPO.

What does the fund offer?

The Future Fund matches up to 100% of the amount provided by third party investors in convertible loans between £125,000 and a maximum of £5m.

What are the main terms?

Term - The loan will be for a maximum of 36 months.

Interest rate – The loan will attract a flat annual interest rate of at least 8% (unless a higher rate is agreed with the matched investors) which will accrue until the loan is repaid or converts.

Structure - The loan will be given on a ‘most favoured nation’ basis. i.e. if the borrower issues further convertible loan instruments on better terms then those terms will apply to the loans under this scheme

Conversion – On maturity at 36 months or during the next qualifying funding round at a minimum discount of 20%.

Are the terms negotiable?

For speed of application the investment terms have been standardised.

The negotiable terms are:

  • the interest rate
  • the conversion discount rate
  • headroom for investments on the same terms made within 90 days of the Future Fund execution; and
  • any valuation cap on conversion.

What is the eligibility criteria?

To be eligible, the company applying must meet the following criteria:

  • Must have been incorporated prior to 31st December 2019 and have raised at least £250,000 in equity from third-party investors in the five-year period prior to 19 April 2020
  • If a member of a corporate group, it must be the ultimate parent company
  • An unlisted UK incorporated limited company (or be eligible to apply as a non-UK parent company)
  • At least one of the following must be true:
    • Half or more employees are UK based
    • Half or more revenues are from UK sales

Further eligibility criteria for both the investee company and the investor are available on the British Business Bank website.

Specific considerations

Use of funds - The funding is ring-fenced and must not be used to repay borrowings, pay dividends, bonuses or advisor fees.

Exit – It is important to consider the implication of future events on the potential consideration available to the founder shareholders. For example: If an exit occurs through an IPO or sale within 6 months after a non-qualifying financing round where the lenders convert their loans into shares, the lenders will receive the higher of:

  • the amount received for their shares in the exit; and
  • the amount received through repayment of the loan with a redemption premium of 100%.

Government rights – The government will have corporate governance rights during the term of the loan including access to quarterly reporting and the right to request a meeting with the Company. Additionally, it has certain transfer rights.

EIS/SEIS – The scheme does not meet the qualifying requirements for EIS or SEIS schemes and is not eligible for tax relief under these schemes.

Our tips

Process - The application process is an investor lead process. This means an investor, or lead investor of a group of investors, applies in connection with an eligible company. It is important both parties have all the correct information available to ensure the application is progressed as quickly as possible.

Timing - As at September 2020, over 700 convertible loans worth £720m have been approved. The scheme will now remain open for applications until 30 November 2020. There is at least a three-week processing time for applications, so it is important to get your application in early and ensure all required information is correctly provided.

Legal Advice - As with any equity investment you should also seek advice from an expert before agreeing terms. You will require a solicitor to work with you on the application to ensure the documentation and process is completed correctly.

S&W’s team can support you:

Understanding terms – it is always important to understand the difference between debt and equity investment. We can work with you to ensure you understand the terms of any equity investment and discuss your options.

Assistance with applications – we understand the information that is key to investors when assessing any proposal. We can support you by identifying and collating the necessary information and drawing out the key messages to best position the business’s application (while clearly identifying key risks).

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By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

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This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.