27 April 2020
Radar - May 2020 – 4 of 4 Insights
The UK government announced in April the launch of a ground-breaking new fund that will provide matched financing to UK start-ups and scale-ups. Taylor Wessing played a lead role in advising the government on the new fund, which will deliver an unprecedented financing solution in an expedited timeframe.
As part of this new scheme, called the Future Fund, the government has initially made up to £250 million of funding available to be provided by way of direct co-investment into eligible UK companies. This is an historic and ground-breaking move for the government, as its looks to take direct stakes in start-ups and scale-ups.
As we continue to advise the government on the finer details and terms, and more information is released, we will keep you updated on next steps and process. To help with this, our team will host a series of webinars to discuss any queries; register your interest for the first session here.
The Future Fund is a scheme which will provide matched funding in the form of convertible loan notes to UK start-ups and scale-ups. Companies may apply for £125k to £5m in matched funding from the Future Fund based on the eligibility criteria, which includes:
The Future Fund is not a grant; therefore it is important that companies view this as a financial investment that will likely convert into equity, but which otherwise will need to be repaid.
The fund is expected to open in May, with applications being processed until September 2020. As we continue to advise the Government on finalising these details, we will update you accordingly.
These funds are intended to be strictly used for working capital purposes, that is to say they cannot be used to repay existing debts, pay dividends or pay staff, management or shareholder bonuses.
However, this does not preclude companies from using other funds raised alongside the scheme to pay any of the above.
As outlined in the government's headline terms, it will invest funds which if converted into equity will do so at a 20% discount and will carry annual interest at 8%.
If private investors negotiate more onerous terms with the company, then the government and all other private investors will automatically be upgraded to these better terms.
Although the expectation is that the loan will convert into equity, if it does not then it will be repayable at maturity. The amount to be repaid will be double the original investment amount. There are no early permitted repayment rights.
The Future Fund will not provide matched funding where recently closed financing rounds are concerned. Matched funds need to be fresh capital, and this should be taken into consideration if companies are currently in the process of raising capital and wish to apply for the scheme.
Due to the currently proposed terms, the matched private investors will not be able to obtain S/EIS tax reliefs nor will qualify as a VCT investment. It is therefore expected that private investors will forego such tax reliefs if they participate.
Refunds will usually be required where consumer contracts are not performed as agreed.
Data transfers to third countries may take place under Article 49 derogations.
ICO to take economic factors into account.
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