High Growth Companies – Raising Equity and HM Treasury’s ‘Future Fund’ and Innovate UK

How to raise equity and access HM Treasury’s and Innovate UK’s £1.25 billion government package to support firms driving innovation in the UK

22 April 2020

According to Beauhurst’s ‘COVID-19 Business Impact’ report, the South West and the devolved nations have the highest proportion of SMEs that are critically impacted by the COVID-19 crisis. SME’s are facing unprecedented challenges in the region and so access to capital is more important than ever to allow businesses to survive and emerge intact.

Those businesses that need to raise capital but are unable to avail themselves of existing government schemes (including the Coronavirus Business Interruption Loan Scheme) will be particularly impacted by the significant depression in private investment levels following the COVID-19 crisis.

Accessing private capital has become increasingly difficult as investors:

  • focus on their existing portfolios
  • struggle to value opportunities
  • adopt a 'wait and see' approach to new investment.

Against that backdrop, the announcement by HM Treasury and Innovate UK of the launch of a £1.25 billion government package to support firms driving innovation in the UK is extremely welcome. The package, designed to protect tech and creative businesses in a bid to maintain the UK’s position as a 'world leader in innovation', comprises:

  • the ‘Future Fund’, a £500 million convertible loan scheme for UK based high-growth companies impacted by the crisis
  • £750m of targeted loans for UK based SMEs focused on research and development.

While we await further detail (including in relation to eligibility criteria), this is what we know so far:

The Future Fund:

  • Launching in May
  • Delivered in partnership with the British Business Bank
  • Eligible firms will be unlisted UK registered companies that have previously raised at least £250k in equity from third party investors in the last 5 years
  • Cheque size between £125k and £5m
  • Proceeds to be used solely for working capital purposes (not to repay any borrowings, make any dividends or bonus payments to staff, management, shareholders or consultants or, in respect of the Government loan, pay any advisory or placement fees or bonuses to external advisers)
  • Private investors to at least match the government commitment
  • Minimum eight per cent interest rate and maximum term length of 36 months
  • The terms shall include a ‘most favoured nations’ clause (i.e., if further convertible loan instruments are issued on more favourable terms, those terms shall apply to the funding provided under the scheme) and a ‘negative pledge’ preventing the creation of any senior debt
  • Loans will automatically convert into the most senior class of equity on the next qualifying equity round at a minimum conversion discount of 20 per cent or at the end of the loan if not repaid

Please see further details here.

£750m of targeted loans:

  • First payments to be made by mid-May
  • Available through Innovate UK’s grants and loan scheme
  • £540m of capital to be deployed to existing Innovate UK customers (including the acceleration of up to £200m of loans)
  • £210m of capital available to businesses not currently in receipt of Innovate UK funding (made up of £175k of support offered to around 1,200 businesses)

If you would like to discuss these options further, please contact Mark Shepherd or Alex Lloyd.

Key contact

Mark Shepherd

Mark Shepherd Partner

  • Head of Private Equity
  • Corporate
  • Healthcare

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