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The Coronavirus Future Fund

21 April 2020 | Paul Hardman

On 20 April 2020 the UK Government announced a new convertible loan scheme called Future Fund which is due to launch in May 2020 (the Scheme). The Scheme is being launched in collaboration with the British Business Bank, the state-backed lender that already invests in many of the UK’s venture-capital funds. In addition to the Scheme, the UK Government is making a further £750 million available through grants and loans through Innovate UK, the UK’s innovation agency. However, the majority of this money will be available to Innovate UK’s existing beneficiaries.

The documents to implement to these arrangements will be complex and any business wishing to proceed will need professional advice on the implications of the Scheme for their business and on the paperwork needed to give effect to it.

The Coronavirus Future Fund

The UK Government plans to make up to £250 million available to provide bridge-funding to ‘innovative businesses’ which are facing financing difficulties due to the coronavirus outbreak, which rely on equity investment and which are unable to access the Coronavirus Business Interruption Loan Scheme.  The UK Government will make unsecured, convertible loans between £125,000 and £5 million alongside other private, third party investors who at least match what the UK Government’s convertible loan amount.

The loan must be used for working capital purposes only. The loan will mature after a maximum of 36 months and interest is currently set at 8% per annum (non-compounding) payable on maturity.

The loan along with the matched investor(s’) investment (Bridge Fund) will automatically convert to equity on your business’s next ‘qualifying’ funding round at a minimum conversion discount of 20% (Discount Rate) to the price set by that funding round.  The Bridge Fund can also convert to equity at the Discount Rate on a ‘non-qualifying’ funding round, sale of your business, an IPO or maturity of the loan after 36 months. During the term of the loan and following conversion the UK Government will have limited corporate governance rights.

Eligibility for the Coronavirus Future Fund

Your business will be eligible if:

  • it is an unlisted, UK registered company;
  • it can attract equivalent match funding from private, third-party investors and institutions;
  • it has previously raised at least £250,000 in equity investment from private, third-party investors in the last 5 years; and
  • it has a ‘substantive economic presence in the UK’.

Full eligibility criteria and the application procedure are due to be published by the UK Government shortly.

Requirements for the Coronavirus Future Fund

Your business will need to provide limited warranties to the UK Government, including in respect of title and ownership, capacity and loan eligibility in accordance with the above eligibility criteria, as well as limited covenants during the term of the loan and following conversion.

Legal opinion

We welcome this initiative which will plug a gap in the support that the Government is offering to business. It is clear the UK Government’s intention for the Scheme is to assist smaller, innovative, fast-growing and tech-based businesses amid worries about potential loss of new game-changing technology which could help drive future UK economic growth and see it lose out to international competition where similar schemes have already been announced.

The implications of taking on convertible debt will need proper consideration, however the obvious public accountability of Government in the context of its ownership of equity should make it an unexpected but at least benign addition to the shareholder roster.

This guidance is correct as of 20 April 2020. We will produce further comment once full and final details of the Scheme are published by the UK Government.

Please note that in relation to the Government’s response to the COVID-19 pandemic our advice is based on the Government’s announcements about changes they intend to make to the law. The situation regarding the pandemic and the Government’s response to it is changing fast and in consequence the final details of the anticipated legislation may differ from that anticipated. Our advice is based on best available information at the time but because of this fluidity there is a risk that it may be rendered inaccurate or inappropriate by later changes. Please be aware of this risk when making decisions and if you need to reconfirm advice with us immediately before taking action.

Our Corporate and Commercial law teams in Bristol and London specialise in advising start-ups and SMEs. If you are looking for legal guidance on the Coronavirus Future Fund please contact:

Paul Hardman – 0117 906 9425 –

Bridget Juckes – 0117 906 9260 –

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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