On Monday 20 April, the Chancellor announced two new business support packages for innovation companies to be launched in May 2020; one targeted at supporting high growth companies (the “Future Fund”), and another providing grants for Small and Medium Enterprises focused on research and development.
The Future Fund has been created with the intention to make £500m available to high growth companies, by way of granting loans of between £125,000 and £5 million. Amongst other requirements, an applicant must:
- be an unlisted, UK registered company;
- have previously raised at least £250,000 in equity investment from third party investors in the past 5 years; and
- have a substantive economic presence in the UK.
There are some key points to note:
- The Government is only committing £250m presently, with the other £250m to be provided by private equity investors. The government will provide no more than 50% of the bridge funding for each company, and as such, private investors will need to at least match the government loan in each case;
- If part of a group, only the ultimate parent company is eligible to make an application;
- The loans will be granted as convertible loan notes, so that on the next investment round in the applicant company, subject to certain caveats, the government’s loan will convert into equity, at a 20% discount to the price paid per share by private investors. For example, if shares were issued at £1.00 a share in the qualifying round, the government would receive its shares at 80p a share;
- The conversion into equity is into the most senior class of shares available at the time of fundraising;
- On a sale or listing, the loan either converts into equity at the discount rate of 20% to the most recent non-qualifying round, or is to be repaid with a 100% redemption premium (whichever is higher);
- Loans mature after 36 months, and the interest rate of at least 8% a year is then repayable; and
- At present, it is unclear how these schemes will work alongside other schemes aimed at high-growth companies, such as SEIS and EIS. Companies should investigate and consider further once the scheme is live in May.
The second fund of £750m is targeted at Research and Development companies by way of grants and loans, to be provided to those who have been awarded funding by Innovate UK. This comprises of:
- Acceleration of £200m funding already awarded to the 2,500 existing Innovate UK members, on an opt-in basis;
- £550m extra funding for these existing members; and
- £175,000 of support for the 1,200 firms not currently members of Innovate UK.
More details of both schemes are due to be announced in due course, and more detail can be found here:
If you have any questions regarding the above, please contact the Corporate & Commercial Team via email or by calling 01603 610911.