If you have followed our Policy Updates or regular newsletter, you will know we have been pushing hard to find an equity-based solution for startups who can’t access the government’s Coronavirus Business Interruption Loans Scheme (CBILS). Last month, following the Save Our Startups campaign (of which, we were a founding member), the government announced the Future Fund, a matched convertible loan scheme for startups looking to raise between £250k and £10m. While welcomed by startups and investors, there was a fair bit of uncertainty over which businesses could qualify and whether the schemes would qualify for tax reliefs such as EIS and SEIS.
New guidance published by the British Business Bank resolves that uncertainty ahead of the scheme’s launch on Wednesday. In this update, we’ll run through the key aspects of the Future Fund programme.
The fund in brief
The government will match convertible loans of up to £5m. The loans will convert to equity at either the next fundraising event or when the loan matures (after three years).
You can qualify provided you are a UK-incorporated startup with a significant economic presence in the UK (either half your sales or staff are in the UK) and you have raised at least £250k in equity finance in the last five years.
The scheme is investor-led. Your lead investor will apply for the matched funding using a portal on the British Business Bank website, which will go live on Wednesday.
Is the Future Fund EIS and SEIS compatible?
No. Investments made through the Future Fund will not qualify for EIS or SEIS tax relief. This is due to EU State Aid Rules. However, the government has confirmed that the compatibility of existing EIS investments will not be affected when the loan converts.
Can Advanced Subscription Agreements count towards the £250k raised?
Advanced Subscription Agreements, which allow investors to pre-pay for shares that will be allocated during a subsequent funding round at a discounted value, will not count towards the £250k raised unless they’ve converted to equity.
Can I qualify for matched funding if my parent company is not incorporated in the UK?
No. This is the case even if the overwhelming majority of your economic activity is based in the UK. This will be an issue for companies that have taken part in US accelerator programmes – such as Y Combinator or Techstars – and have Delaware-incorporated parent companies.
Which investors qualify?
The British Business Bank state that “an investor must fall within any of the following categories:
an “investment professional” within the meaning given to that term in article 19 of the FPO
a high net worth company, unincorporated associated or high value trust falling within article 49(2) of the FPO
a “certified sophisticated investor” or a “self-certified sophisticated investor” within the meaning given in articles 50 and 50A respectively of the FPO
a “certified high net worth individual” within the meaning of article 48 of the FPO
an equivalent professional, high-net worth, institutional or sophisticated investor in accordance with applicable law and regulation in such investor’s home jurisdiction
an association of high net-worth or sophisticated investors within the meaning of article 51 of the FPO
capable of being classified as a “professional client” within the meaning given in the glossary to the FCA Rules.”
It is useful to note that funds that have received government funding, for instance through the Enterprise Capital Fund will qualify.
The ability to self-certify will ensure most investors will qualify. The scheme is open to angel syndicates, micro VCs and crowdfunders. However, the lead investor must invest at least £12,500.
For more information on the Future Fund, there is a FAQ for businesses on the British Business Bank’s website. We also recommend signing up to Coadec’s newsletter and reading their update on the Future Fund.