The Future Fund.

On 20 May 2020 the Government opened its £250 million Future Fund. The Future Fund is a UK Government-backed co-investment scheme delivered by the British Business Bank. It is aimed at supporting high-growth companies during the COVID-19 pandemic, and beyond.

The Future Fund provides Government convertible loans to UK-based companies ranging from £125,000 to £5 million, subject to the investee company’s private investors matching the funding. One of the aims of the Future Fund is to plug a gap in coverage for start-up and scale-up companies in the Government’s initial package of COVID-19 liquidity schemes, such as the Coronavirus Business Interruption Loan Scheme (CBILS).

The application process

Applications are expected to take a minimum of 21 days from initial application to funding being awarded.

The application process is investor-led. This means that the lead investor must apply on behalf of itself, the investee company and the other investors. The application must be made through the British Business Bank’s application portal.

The lead investor will be required to provide certain information regarding the investment and other investors, and confirm their own eligibility. Full details of the information required from the lead investor as part of the application process can be found here and details on who is eligible is set out below.

The application is then submitted to the investee company, who will check the information and details provided by the lead investor, provide additional information and submit the application. Further details on the information required can be found here.

Once the application has been accepted, the Future Fund will send the investee company and the investors the Convertible Loan Agreement for signing. In order to complete the funding, the Future Fund requires receipt of:

  • the Convertible Loan Agreement signed by all other parties;
  • the Solicitor’s Confirmation Letter confirming that it has received and is holding in its client account the matched investor loan monies.

Once this is in place, the Future Fund will circulate a fully executed copy of the Convertible Loan Agreement, and shall pay its monies to the same solicitor’s client account. All monies held may then be released to the investee company.


Investee Company

The investee company is eligible if:

  • it is UK-incorporated – if the company is part of a corporate group, only the parent company is eligible;
  • it has raised at least £250,000 in equity investment from third-party investors in the last 5 years;
  • none of its shares are traded on a regulated market, multilateral trading facility or other listing venue;
  • it was incorporated on or before 31 December 2019;
  • at least one of the following is true:
  • half or more employees are UK-based;
  • half or more revenues are from UK sales.

The investee company will be required to self-certify.


For an investor to be eligible they must fall within any of the following categories:

  • an “investment professional” within the meaning given to that term in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (“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 Handbook.

Restrictions of the use of proceeds from the loans

The Future Fund cannot be used to repay shareholder or related party loans (other than under any bank or venture debt facilities), pay dividends, pay bonuses or discretionary payments that are non-contracted or not in the ordinary course of business for 12 months, or pay advisory, placement or similar corporate finance type fees in relation to the Future Fund.

Headline terms of the Convertible Loan

  • the loan will mature after 36 months;
  • the loan cannot be repaid early by the investee company other than with the agreement of all the investors;
  • the loan will have a minimum of 8% per annum (non-compounding) interest charge applied;
  • the interest will accrue until the loan converts. At this point, the interest will either be repaid or convert into equity;
  • in certain circumstances the loan will convert into shares in the investee company, including on an exit, new funding round and upon maturity of the loan. Loans may alternatively be repaid on an exit event or at their maturity date either at the election of the investors or, in certain cases, automatically;
  • a minimum 20% discounted price-point for noteholders will apply when the loan monies convert into shares;
  • if the loan is repaid it shall attract a premium for the Government and matched investors.

These pre-defined terms cannot be negotiated.

You will note that the terms of the loan are far from ‘soft’ and careful thought and analysis should be undertaken to decide whether applying for the Future Fund is the best course of action for the investors and the investee company. It may be that one of the other schemes the Government has introduced to help businesses deal with the Covid-19 crisis a better fit for the investee company.

How can Mundays help?

  • Mundays are able to advise on the terms of the Convertible Loan Note, assist in preparing the investee company’s Director’s Certificate and produce the Solicitors Confirmation Letter;
  • Mundays will check the investee company’s articles of association, shareholders’ agreement and any existing debt financing to check whether there are any steps that need to be followed or consents obtained;
  • Mundays will prepare the necessary legal documentation for the investee company, such as shareholders resolutions, board minutes and investor consent letters;
  • Mundays will take receipt of the funds from the investors and the Future Fund and pass these on to the investee company after completion.

The contents of this article are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this article. © Mundays LLP.


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