TERM

WHAT WE KNOW SO FAR

FURTHER DETAIL REQUIRED

Eligibility 

- Unlisted UK registered companies.

- Previously raised at least £250k in equity from third party investors in the last 5 years.

- Substantive economic presence in the UK.

- The scheme is aimed at ‘innovative companies’. What does it mean to be innovative?

- What specifically does a substantive UK presence mean? What if you have been part of a US based accelerator (e.g., Y Combinator)?

- Can companies pre-apply? If so, how?

Matched Funding

- Funding must be matched by private investors.

- Private investors must contribute at least half of the total amount of bridge financing raised.

- Are existing shareholders and friends and family counted in the match funding amount?

- Do advance subscription agreements count?

Loan Size

- Government bridge funding between £125k and £5m.

- No maximum amount of bridge funding from private investors.

Use of Proceeds

- Must be used solely for working capital purposes not to repay debt, pay dividends, pay bonuses or pay any advisory or placement fees to external advisors.

- Presumably this is limited to advisors engaged for the purposes of the funding? What about existing advisors?

Conversion 

- Conversion at a 20% discount to the price set by the relevant funding round.

- The rate will be higher if the company agrees a higher rate with matched private investors.

- Conversion into the most senior class of equity.

- Automatic conversion to shares on a "qualifying funding round" (the company raises an amount at least equal to the Future Fund and matched funding).

- On a "non-qualifying round" (where the company raises less money than received under the scheme) a majority of the matched investors will have the right to elect to convert at the 20% discount.

- On an IPO, the loan will convert at the 20% discount or be repaid (with a 100% redemption premium) – whichever results in the greater return.

- On conversion, only the principal of the loan will attract the discount rate, not any accrued interest.

Redemption 

- Loan is repayable after 36 months.

- If the Government and the matched investors elect to redeem the loan at the date of maturity (or on a sale or IPO), the amount to be repaid will be the full amount of funding, plus a 100% premium (i.e. double the amount of the original funding).

Term

- 36 months.

Interest Rate

- Interest shall accrue on the loan at a rate of 8% per annum (not compounding) payable on maturity of the loan.

- The rate will be higher if the company agrees a higher rate with matched private investors.

Government Rights

- Limited corporate governance rights during the term of the loan and as a shareholder following conversion of the loan.

- Company to provide customary fundamental warranties and limited covenants.

- How extensive will the corporate governance rights be?

- What information rights will the government require?

Most favoured nation

- If more favourable terms are given to future investors, those terms shall apply to the funding provided under the scheme.

- Will the government automatically exercise these rights?

Negative pledge 

- The creation of any indebtedness which is senior to the loan from the Future Fund will not be permitted (unless such indebtedness is from a genuine third party that is not an existing shareholder or investor)

- What constitutes senior debt? Is invoice discounting / debt factoring captured?

Transfer

- The Government may transfer the loan and, following conversion of the loan, any of its shares to an institutional investor which is acquiring a portfolio of the Government’s interest in at least 10 companies.