Developed in conjunction with the British Business Bank, the Chancellor of the Exchequer today announced that he is to establish a new “Future Fund” to support the UK’s innovative businesses currently affected by the Covid-19 pandemic. The Future Fund is aimed at startups and R&D firms that are struggling to survive in the Covid-19 lockdown.

The Chancellor noted that these businesses, which are often pre-revenue or pre-profit and typically rely on equity investment, have been unable to access other government business support programs, such as CBILS. The Future Fund purports to provide £250m of new government funding, which will be unlocked by matching private third party investment, with bridging loans ranging from £125,000 to £5 million. The loans will be convertible into equity share capital on a number of trigger events.

We believe that these convertible loans are more appropriate for innovator companies than CBILs, as we have seen, and so are welcomed.  It is hoped that, in conjunction with the Future Fund and Innovate UK grants, there will be an enhanced EIS programme with additional tax incentives.  The aim would be to stimulate EIS-qualifying equity investments from high net worth individuals.  Our view is that this approach would create a better balance between private and public pools of capital across loans, grants and equity.

The Future Fund is developed in partnership with the British Business Bank with the intention of launching for applications in May.  It is expected that the fund will initially be open until the end of September.


The applicant must:

  • be an unlisted UK registered company with a substantive economic presence in the UK;
  • be a parent company, if a member of a corporate group;
  • be able to attract the equivalent match funding from third party private investors; and
  • have previously raised an aggregate of at least £250,000 in equity investment from third party investors in the last 5 years.

Full eligibility criteria will be published in due course.

Some (but not all) key terms of the funding include:

  • minimum loan provided shall be £125,000 and the maximum loan shall be £5,000,000 (the government loan shall constitute no more than 50% of the bridge funding being provided to the company);
  • no cap on the amount that the matched investor(s) may loan to the company;
  • funding shall be used solely for working capital purposes;
  • automatic conversion at a minimum discount of 20% into the most senior class of shares on a sale, IPO or the company's next funding round (if a further funding round is completed within six months of the relevant conversion event, the lenders shall be entitled to convert their shares into the senior class of shares of the company in issue post that round);
  • minimum interest rate of 8% per annum (non-compounding) to be paid on maturity of the loan; and
  • maximum term of 36 months.

Full headline terms of the Future Fund financing can be found here.

In addition to this, it is expected that a further £750m of grants and loans will be provided by Innovate UK, the UK’s business-facing arm of government research and development support, to smaller businesses focused on research and development. The majority of the funds will be available to the agency's 2,500 existing customers. It is expected that the first payments will be made in mid-May.

The views expressed herein are solely the views of the authors and do not represent the views of Brown Rudnick LLP, those parties represented by the authors, or those parties represented by Brown Rudnick LLP. Specific legal advice depends on the facts of each situation and may vary from situation to situation.  Information contained in this article is not intended to constitute legal advice by the authors or the lawyers at Brown Rudnick LLP, and it does not establish a lawyer-client relationship.