The scheme opened for applications on 20th May 2020 and by 5th July 2020 a total of 722 applications had been submitted, of which 376 had already been approved. Under the Future Fund scheme, government funding is available to UK companies under a convertible loan facility on the basis that the government contribution, which is subject to a minimum of £125,000 and a cap of £5m for any single company, will match that of other lenders participating in the loan. The debt is convertible into shares in the company on future events including an equity capital raise, or an exit event.

The initial allocation of government funding to the scheme was £250m. It was reported that on the first day the scheme was open for applications, a total of £450m in government funding was applied for. As at 5th July, the approval of 376 applications has resulted in total government funding of £380m having been committed. The scheme is proving popular and it is likely that a large proportion of the 346 applications which have been submitted but not yet approved will be approved shortly. The government had originally indicated its expectation that applications would take a minimum of 21 days to process, so it is a reasonable assumption that many outstanding applications remain to be determined and have not been rejected.

Although the Future Fund scheme is proving popular, its take-up is dwarfed by the number of applications to date under the CBILS scheme (107,309) and under the Bounce Back loan scheme (1,240,701). In part this reflects the wider range of companies which are eligible under those schemes compared with those which could qualify under the Future Fund rules. It might also reflect the fact that investment through the Future Fund convertible debt does not qualify for the purposes of the Enterprise Investment Scheme (EIS), meaning that investors will not benefit from either the income tax relief on investments when made, or the exemption from capital gains tax when shares are sold. Individual investors in early stage companies are often understandably keen to ensure that EIS relief will be available, and its absence will inevitably reduce the amount of available debt for growth companies which could be matched by government.

Notwithstanding these drawbacks, the Future Fund has attracted a great deal of interest and it is likely that the government funding commitment will eventually significantly exceed the original £250m cap contemplated. Rishi Sunak indicated soon after the scheme opened that the government would be likely to extend the scheme if demand for funding outstripped the initial fund contemplated. The government has not yet announced a revised cap, but there is no suggestion that it intends to limit funding available for applications received during the application window.

The scheme remains open for applications until the end of September 2020.

Are you eligible?

In order to be eligible to claim support under the Future Fund scheme, a company must:

• Be a UK-incorporated private company (with limited exceptions for companies which have participated in selective accelerator programmes outside the UK) and, if a member of a group of companies, be the ultimate parent company
• Have raised at least £250,000 in equity from third party investors in funding rounds between 1 April 2015 – 19 April 2020. “Third party investors” excludes founders and employees
• Be UK-based, meaning that half or more of its revenues are generated from UK sales, or half or more of its employees are based in the UK

Investors who are participating in the convertible loan facility must also meet certain requirements. Although existing shareholders are permitted to participate, controlling shareholders (ie who already hold a majority of the issued shares in the company) are excluded, and accordingly a controlling shareholder will not be able to obtain matched funding for his/her investment.

Due to the requirement for a company to have raised at least £250,000 in equity from third party investors, the Future Fund scheme is not suitable for very early stage start-ups. However, for companies which have previously raised funding in excess of this threshold, the Future Fund scheme is likely to prove an attractive route to raise additional funds, particularly if a small VC fund, family office or overseas investor (who is not concerned about EIS qualifying status) is proposing to invest in the company.

Although there is no indication that the application window might close before the end of September 2020, start-up companies which are considering applying for funding under the Future Fund scheme should make their applications as soon as possible, as there is no guarantee that the government will not bring forward the expiry date.