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Sophie Payne


It was announced earlier this month that the Future Fund investment scheme will be extended to 31 January 2021. Operated in partnership with the British Business Bank, the scheme provides government loans of between £125,000 and £5m when matched by one or more third-party investors.

Since opening for applications in May, the scheme has seen £875.8m worth of convertible loans approved for 874 companies according to data published by the British Business Bank last week, with a total number of 1,325 applications having been made to date.

With a 65% acceptance rate, the scheme has proved to be a popular alternative source of funding for pre-revenue or pre-profit companies who may be unable to access other government business support programmes.

Scheme eligibility 

The scheme is open to unlisted companies incorporated in the UK on or before 31 December 2019 for whom at least one of the following is true: (i) half or more employees are UK based; or (ii) half or more revenues are from UK sales. The investee company must also have raised at least £250,000 in equity investment from third-party investors in the period from 1 April 2015 to 19 April 2020. Funding received from any founder, employee, worker or consultant or any of their ‘connected persons’ will not be counted towards this threshold. Shares must be issued for cash.

Non-UK parent companies can also apply provided they meet additional qualifying criteria, including having participated in and received investment from an Accelerator Programme on or before 19 April 2020. The investee company must be the ultimate parent company of a group which contains at least one subsidiary operating company incorporated in the UK on or before 31 December 2019.

Third-party investors wishing to match the Future Fund's investment must fall within one of the specified exclusions contained in The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (“FPO 2005”), including but not limited to high-net worth companies, certified high net worth individuals, sophisticated investors and investment professionals. A third-party investor cannot be connected with either the investee company or a connected person of the investee company.

Key investment terms:


  • The government loan must be matched by at least an equal amount by one or more third-party investors, with no upper limit on the amount invested. The Future Fund, the investee company and the third-party investors will all be required to sign up to standard scheme documentation, including a Convertible Loan Agreement containing only a small number of negotiable terms.

  • The loans will mature after a maximum term of 36 months but can be repaid earlier with the prior written consent of all lenders. On repayment of the loans, a “Redemption Premium” equal to 100% of the principal amount of the loans will also be payable. 

  • To the extent not already repaid, the loans will automatically convert into shares in the investee company on the maturity date unless the investors elect otherwise. The loans may also be converted into shares in other specified circumstances (a “Qualified Financing”, a “Non-Qualified Financing” or an “Exit”) – either automatically or at the investors’ election. 

  • Conversion of the loans will be into the most senior class of shares issued to investors in a Qualified or Non-Qualified Financing or in issue on the maturity date or on completion of an Exit (as the case may be). A minimum conversion discount of 20% will be applied as against the subscription price at the time of the relevant conversion event.

  • The loans will be unsecured and therefore rank behind any existing secured debt of the investee company.

  • Interest on the loans will be payable at a rate of 8% per annum (non-compounding) or higher if agreed with the third-party investors. Interest will accrue until the date the loans are repaid or converted. 

  • Additional investment from other lenders can be made on the same terms within a period of 90 days from completion, up to a maximum agreed “Headroom Amount”, although this will not be matched by the Future Fund. As a default the Headroom Amount will be zero so the investee company and third-party investors will need to agree this between themselves if such additional lending is to be permitted. 

  • The loans must be used solely for working capital purposes and cannot be used to repay borrowings, make distributions to shareholders, pay bonuses or settle advisor’s fees.

  • The investee company must warrant that it satisfies the eligibility criteria and that it has all necessary authorisations and consents in place in connection with the execution and performance of the Convertible Loan Agreement – in particular it should ensure that its directors have authority to allot shares and that rights of pre-emption have been disapplied in respect of the same to allow for conversion of the loans, if necessary. Consideration should also be given as to whether the consent of any existing lender or investor is required.  

  • The third-party investors will also be required to warrant that they satisfy one of the exclusions in the FPO 2005 and that they have capacity and authority to enter into and perform its obligations under the Convertible Loan Agreement without any other consent or approval.

How to apply

The application process is led and initiated by the third-party investor(s) rather than the investee company. If a number of third-party investors are making the matched loans, a single ‘Lead Investor’ must make the application on behalf of all of the third-party investors. The Lead Investor must contribute at least £12,500 in matched funding. 

Broadly, the application process is as follows:

  1. The investor or lead investor makes the initial application, certifying that the scheme’s eligibility criteria is met and providing details of the investment via the Future Fund portal

  2. The investee company will then be notified and asked to confirm the accuracy of the information provided by the investor.

  3. Completed application to be reviewed and a response provided within 21 days.

  4. If approved, the scheme documentation, including the Convertible Loan Agreement, will be circulated for execution. A director of the investee company will be required to sign a director’s certificate confirming that all eligibility criteria has been met and all necessary consents and authorisations are in place. 

  5. The third-party investors will then need to transfer their funds to the client account of the investee company’s solicitor, following which the solicitor will confirm to the Future Fund that it is in receipt of such funds. 

  6. Once such confirmation has been given and all scheme documentation signed and returned, completion will be deemed to have taken place and the Future Fund will release the government loan to the investee company’s solicitor.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.


Get in touch

Boyes Turner has experience of advising both investors and investee companies in relation to the Future Fund scheme, please contact Sophie Payne on [email protected]

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