The Government is setting up a co-investment fund, known as the "Future Fund", to provide convertible loans of between £125,000 and £5 million to UK high growth companies.

Private third party investors ("Matched Investors”) must at least match the amount of bridge funding provided under the convertible loan.

Funding will be made available to start-ups, many of whom are pre-revenue and so would not qualify for funding under the Coronavirus Business Interruption Loan Scheme.

The Future Fund will be administered by the British Business Bank and is intended to go live in May 2020. The scheme will remain open until the end of September 2020.

Who qualifies?

  • Unlisted UK registered companies whose main business activities are in the UK
  • The business must have raised at least £250,000 from private third party investors in the last five years
  • Pre-revenue and pre-profit making businesses qualify.

The criteria will be applied to the parent company for members of a group of companies so companies with a non-UK parent will not be eligible for funding.

What are the key terms of any convertible loan?

  • The loan can only be used for general working capital purposes
  • Interest is charged at 8% per annum (or a higher rate if agreed) and is paid on maturity/conversion.
  • The loan must be repaid within 36 months.


  • The loan will convert: (i) automatically on the next equity funding where the business raises at least the amount of bridge funding provided by the Future Fund and the Matched Investors; or (ii) at the election of a majority of the Matched Investors where a lesser amount is raised (a "non-qualifying funding round")
  • The company will be entitled to choose whether to repay the accrued interest or allow it to convert (any interest would convert at the full price of the round)
  • The conversion price will be at a minimum 20% discount to the price of the fund raising which triggered conversion
  • On a sale or IPO the loan will either convert at the discounted price by reference to the last non-qualifying funding round or it will be redeemed with a redemption premium of 100% of the principal of the loan, whichever will provide the higher amount to the Future Fund.
  • Conversion is into the most senior class of equity.


On maturity, the loan shall, at the option of the holders of a majority of the principal amount held by the Matched Investors, either

  • be repaid by the company with a redemption premium (being a premium equal to 100% of the principal); 
  • convert into equity at the price set by the most recent funding round (with the discount rate applied).

Any loan made by the Future Fund will convert unless the Future Fund specifically requests repayment in respect of its loan.

Investor rights

In return for the provision of the bridging loan the Future Fund will require:

  • veto rights over decisions which would have a material impact on the business
  • limited warranties in respect of title and ownership, capacity, compliance, borrowing, litigation and insolvency etc
  • information rights equivalent to those enjoyed by other investors
  • a negative pledge preventing the creation of any indebtedness which is senior to the loan from the Future Fund
  • a right to amend the bridging loan to match more favourable terms offered to other convertible loan investors.

Final thoughts

The Future Fund should provide financial support to companies that would otherwise not benefit from the various other state aid schemes and grants launched by the Government over the last month to alleviate the financial stress resulting from COVID-19. 

The challenge however will be ensuring that funds are only channelled to successful companies that are viable businesses and worthy recipients of support during COVID-19. These are likely to be the more established start-ups, as opposed to seed stage companies.

Further details of the scheme will be released by the Treasury over the next few weeks.

Please get in touch if you are considering making an application to the Future Fund and would like more specific advice, or if you are a private investor who would like advice on fund matching.