The Future Fund
Our Sectors • • • •
Technology, Communications & Digital Media Construction, Land & Planning Personal Affairs, Private Wealth & Philanthropy Retail & Hospitality
Our Expertise • • • • • • • • • • • • •
Arbitration Banking & Finance Charities Commercial & Corporate Data Protection & Information Disputes Employment Family & Matrimonial Insolvency & Restructuring IP & Technology Real Estate Tax Trusts, Estates & Private Client
This information is offered on the basis that it is a general guide only and not a substitute for legal advice. We cannot accept any responsibility for any liabilities of any kind incurred in reliance on this information.
The Future Fund
The UK government recently issued final guidance on its Coronavirus Future Fund (the Scheme) launched in April to support innovative and fast-growth businesses through the Covid-19 outbreak. Privately owned UK companies that have raised at least £250,000 of equity finance in the last 5 years are entitled to apply for loans of up to £5,000,000 provided the government funds are at least matched by the business’s existing investors. The Scheme is administered by the British Business Bank. The Scheme is designed to provide bridge financing for companies that will go on to raise additional equity. The Scheme was also a response to help those companies unable to access other government business support programmes because they are either pre-revenue or pre-profit and typically rely on equity investment. Launched with an initial investment pot of £250m, the Scheme has been significantly extended and at the time of writing has invested in excess of £320m. The Scheme is open until the end of September 2020.
Johnathan Rees Partner | Head of Corporate & Commercial johnathan.rees@laytons.com +44 (0)20 7842 8009
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The Future Fund
Eligibility
•
sophisticated investor” within the meaning given in
In order to be eligible for the Scheme, each of the investors
articles 50 and 50A respectively of the FPO
and the company must meet specific criteria.
•
Company
•
•
an equivalent professional, high-net worth, institutional or sophisticated investor in accordance with applicable
The Scheme is restricted to privately owned unlisted
law and regulation in such investor’s home jurisdiction •
which were incorporated prior to 31st December 2019.
•
a “certified high net worth individual” within the meaning of article 48 of the FPO
(AIM companies are ineligible) UK registered companies •
a “certified sophisticated investor” or a “self-certified
an association of high net-worth or sophisticated investors within the meaning of article 51 of the FPO
The company must have previously raised at least £250k
•
capable of being classified as a “professional client”
in equity from investors in the 5 years up to the launch
within the meaning given in the glossary to the FCA’s
of the Scheme (1 April 2015 - 19 April 2020).
handbook of rules and guidance.
The company must have a substantive economic presence in the UK meaning:
None of the investors should be “connected persons” of the company. It should be noted that, depending upon the rights
•
50% or more employees are UK based; or
of investors under the company’s constitution, this restriction
•
50% or more of its revenues are generated by UK
(which captures not only an investor with more than 50% of
sales.
votes but also any who has more than 50% of the economic
•
If it is part of a group of companies the company
rights) may well adversely impact the ability of companies to
is the parent company (only the parent company
access the Scheme (see Application Process).
in any group is eligible). However this rule is relaxed for UK companies which have participated in accelerator programmes and were required, as part of that programme, to have parent companies outside the UK.
Funding •
The Scheme is structured using convertible loan notes so avoiding the need for the lender to have to value
Investor
the business which will likely be depressed as a result of the pandemic or possibly be pre-revenue or profit.
An investor must fall within any of the following categories to
(Convertible loan notes are typically used by investors
be eligible:
in early stage investment where it is difficult carry out an accurate valuation.)
•
an “investment professional” within the meaning of article 19 of the Financial Services and Markets Act 2000
•
(Financial Promotion) Order 2005 (the FPO) •
The minimum loan amount provided by the Scheme is £125,000 and the maximum amount is £5m.
a high-net-worth company, unincorporated associated or high value trust falling within article 49(2) of the FPO
•
There is no “cap” on the amount that the investors may loan to the company.
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Conversion •
The loan is repayable after 3 years. There is no right for the company to elect to prepay the loan.
The loan converts into the company’s most senior class of equity shares in a variety of circumstances, including fundraisings, exit events and upon maturity.
•
•
Interest
The loan converts at a minimum 20% discount to the
Interest is payable on the loan at 8% per annum (not
price set by the relevant funding round. The rate will
compounding) payable on maturity of the loan. The rate will
be higher if the company agrees a higher rate with
be higher if the company agrees a higher rate with matched
matched private investors. Only the principal element
private investors.
of the loan attracts the discount rate, not any accrued interest. •
The loan will convert automatically into equity on the
Use of Funds
company’s next qualifying funding round (i.e. where the
The scheme funds must be used solely for working capital
company raises an amount at least equal to that raised
purposes. They are not to be used for any of the following
through the scheme). On a non-qualifying round (i.e.
purposes:
where the company raises an amount that is less that the amount raised through the scheme) the holders of
•
•
Repay any debt from a shareholder or a shareholder
a majority of the principal amount held by the matched
related party (other than the repayment of any
investors will have the right to elect to convert at the
borrowings pursuant to any bank or venture debt
20% discount.
facilities)
On a sale or IPO, the loan will convert at the relevant
•
Pay any dividends or other distributions
•
Make any bonus or other discretionary payment to any
discount or be repaid with a redemption premium of
employee, consultant or director of the company for a
100% of the principal of the bridge funding – whichever
period of twelve months from the date of the relevant
results in the greater return.
convertible loan agreement (unless they are performing a contract that predates the investment by the Scheme or it is paid by the company in the ordinary course of
Repayment •
business •
Pay any advisory fees or bonuses to any corporate finance entity or investment bank.
The government and matched investors can elect for the company to repay the loan on an exit or at its maturity date. The amount repaid will be the full amount of the loan plus a premium of 100% of the principal.
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The Future Fund
Government Rights Under the terms of the loan documentation the government
Application Process •
has limited rights including:
The Scheme is investor-led, meaning that the existing investor (or a lead investor of a group of investors) applies on behalf of themselves.
•
Governance
•
Warranties
•
Covenants (including the provision of financial information)
• •
•
•
A typical process is likely to involve the following steps: •
concerning eligibility for the Scheme (with particular
scheme loan
attention to any liquidation preference rights of
To transfer the loan and any shares arising on
shareholders under the company’s articles), the
conversion to an institutional investor acquiring a
company's ability to repay the debt, any impact on
portfolio of the government’s interest in at least 10
future fund-raising and agreement of the specific
companies
commercial arrangements. Consideration will also
Most favoured nation - if the company agrees more
need to be given to any necessary approvals and
favourable terms with future investors then those terms
consents required (shareholder and board approval
will apply automatically to the Scheme funding.
will most likely be required). •
The lead investor should check the eligibility of the business on the scheme website
Tax •
Discussions between the company and its investors
Creation of any indebtedness ranking ahead of the
•
If the company is eligible, the lead investor will submit an application using the British Business
The investor match funding will not qualify for SEIS/
Bank’s online portal. The company’s director or
EIS Relief. This may have a significant impact on the
secretary confirms (through the company’s account
investor’s appetite to take advantage of the scheme.
on the Scheme’s online portal) that it is happy for the application to be submitted. (It should be noted
•
There may be tax implications for investors using the
that the investor will need to provide information
Scheme and applicants should take appropriate financial
when submitting the application for the Scheme
advice before applying.
concerning the applicant, the other investors making up the matched funding and the company.) •
The company must identify a nominated solicitor to support it through the process and also to handle distribution of funds if the application is successful. Once checks have been completed on the nominated solicitor, the company will formally
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The Future Fund
instruct the solicitor to act on its behalf in relation to the scheme. •
Following a successful application the following documentation will be issued by the government: • •
convertible loan agreement solicitor’s confirmation that the investor(s) completion monies have been received into its client account
•
a director’s certificate confirming that the company meets the eligibility criteria and is in receipt of all corporate authorities and debt approvals and/or waivers needed to enter into the loan agreement.
(The British Business Bank has provided a set of standard documents on its website required under the Scheme.) •
Provided it is satisfied that everything is in order, on receipt of the signed scheme documentation the government will complete the transaction by signing and dating the loan agreement and release it to the company and investor(s). The Government will the send its completion monies to the solicitor for release to the company.
If you would like to discuss any aspect of the Scheme in further detail please contact Johnathan Rees or your usual contact at Laytons LLP.
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The Future Fund
Expertise
Corporate & Commercial We provide a complete range of corporate and commercial advice and support for clients who extend from start-ups, individual entrepreneurs and family offices to multinational corporations. We advise on every facet of our client’s corporate legal needs through the complete life-cycle of an enterprise, from its inception, through its growth and expansion to, perhaps, its sale or flotation on a public market. Our teams focus on acquiring a deep understanding of the particular needs and objectives of our clients to deliver advice and outcomes that are tailored to those needs and objectives and which meet them swiftly and cost-effectively. The approach to technical problems is informed, insightful and proportionate, and we take pride in viewing problems from a fresh perspective to provide innovative solutions.
Johnathan Rees Partner | Head of Corporate & Commercial johnathan.rees@laytons.com +44 (0)20 7842 8009
John Gavan
Esther Gunaratnam
Dimitri Iesini
Partner john.gavan@laytons.com +44 (0)20 7842 8000
Partner esther.gunaratnam@laytons.com +44 (0)20 7842 8000
Partner dimitri.iesini@laytons.com +44 (0)20 7842 8081
Robert MacGinn
Brian Miller
Daniel Oldfield
Partner robert.macginn@laytons.com +44 (0)20 7842 8000
Partner brian.miller@laytons.com +44 (0)20 7842 8000
Partner daniel.oldfield@laytons.com +44 (0)20 7842 8037
Daniele Penna
Christopher Sherliker
Cameron Sunter
Partner daniele.penna@laytons.com +44 (0)20 7842 8053
Partner christopher.sherliker@laytons.com +44 (0)20 7842 8015
Partner cameron.sunter@laytons.com +44 (0)20 7842 8036
Liza Zucconi Partner liza.zucconi@laytons.com +44 (0)20 7842 8092
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Š Laytons LLP which is authorised and regulated by the Solicitors Regulation Authority (SRA Nº 566807). A list of members is available for inspection at the above offices.