Thought Leadership

UK Government Future Fund For Innovative Companies May 2020 Update

Client Updates

Following Baker Botts’ initial article on 23 April 2020 (available here), the UK Government launched the Future Fund on 20 May 2020 (full details can be accessed here).

The Future Fund is aimed at supporting UK start-ups and will provide convertible loans of between £125,000 to £5,000,000 to eligible UK start-ups with an initial fund of £250,000,000 available. 

The Future Fund is open for applications until September 2020; however, funds are allocated on a first come first served basis and companies should therefore apply as soon as possible if funding is being sought as demand is likely to exceed supply.

For businesses considering the Future Fund, a number of key details are outlined below.


A business is eligible for the Future Fund if:

a) it is UK-incorporated - if your business is part of a corporate group, only the parent company is eligible;

b) it has raised at least £250,000 in equity investment from third-party investors in the last 5 years;

c) none of its shares are traded on a regulated market, multilateral trading facility or other listing venue;

d) it was incorporated on or before 31 December 2019; and

e) at least one of the following is true:
a. half or more employees are UK-based; or
b. half or more revenues are from UK sales.

The Government appears to have taken a black and white approach to eligibility and companies which fail to satisfy one or more of the criteria above are unlikely to be able to access the Future Fund. 

An eligibility test is available here.

Third-Party Investors

As noted in our 23 April 2020 article, the Government will only provide loans alongside private third-party investors and the Government loan cannot constitute more than 50% of the funding being provided to the company. 

Given this requirement, the application process is investor-led meaning an investor is required to apply in connection with an eligible company (the application page is accessible here). Accordingly, a business seeking funding from the Future Fund will initially need to source funding from private third-party investors, something which may currently be challenging. In practice, existing investors/ shareholders are likely to be the most practicable source of matched funding.

Key Terms

The terms of the Future Fund remain largely unchanged from the Government’s initial announcement on 20 April 2020 and any investment is completed by way of a convertible loan agreement which is pre-defined and cannot be negotiated (a template is available here). Several of the key terms are detailed below:

a) the Future Fund will match 100% of the amount provided by investor(s), up to a maximum of £5,000,000;

b) funding must not be used to: (i) repay any borrowings; (ii) pay any dividends; (iii) pay any bonuses; or (iv) pay any advisory fees;

c) interest on the loan will be a minimum of 8% per annum (non-compounding) or the interest rate agreed between the company and investor(s) (if higher);

d) interest will accrue until the loan converts or is repaid;

e) the loan will mature after 36 months and cannot be repaid early, other than with agreement of the majority (in value) of matching third-party investors (in respect of the matching third-party investor tranche) or the Future Fund (in respect of the Future Fund tranche). Upon repayment, a redemption premium of 100% of the principal amount will be repayable. This is in addition to the principal amount and interest; 

f) the loan will convert into shares in the company in certain circumstances, including an exit or a new funding round at a minimum discount of 20% to the price per share at the funding round or exit (as relevant). The loan will convert into the most senior class of shares in the company; and

g) the matching third-party investors will also be a party to the loan agreement and will invest on broadly the same terms as the Future Fund.


As mentioned in our article of 23 April 2020, the terms of the Future Fund are predefined, non-negotiable and weighted in the Government’s favour. Therefore, start-ups should assess all their alternative financing options (in conjunction with their advisors) prior to accepting investment from the Future Fund.

For further information or advice regarding the Future Fund or corporate finance, please contact the authors.


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