On Wednesday 20 May 2020 the government launched the Future Fund. This initiative is designed to support innovative start-ups who may have trouble accessing other government reliefs. Future Fund is open to all UK companies that meet the eligibility criteria and applications are decided on a first come, first served basis. Under this scheme, investors can apply to Future Fund to match private investment between £125,000 and £5 million. The investment must take the form of a convertible loan agreement with a minimum level of negotiation. Implementation of the scheme requires input from investors, the investee Company, and a regulated solicitor.


The Future Fund is an investor-lead scheme. This means that the Lead Investor in the relevant fundraising round, not the Company must make an application to the Future Fund. If there is only one investor, they will be the Lead Investor. If a group of investors decide to invest, then the Lead Investor is the one chosen to make the application to the Future Fund and must provide the information required by the application; this is a purely administrative role and the Lead Investor does not have greater rights or duties than the Other Investors. The only requirement of a Lead Investor is that they must invest at least £12,500.


The Company must confirm the information provided by the Lead Investor. If the application is approved, the Company will be required to submit a Director’s Certificate confirming certain information including that the board has the authority to issue shares if the convertible loan converts to equity. Finally, the Company is responsible for nominating the regulated solicitor who will assist it in the Future Fund application.


The distribution of funds for successful applications will be handled through a nominated company solicitor. It is the Company’s responsibility to appoint a solicitor with the necessary right to practice and handle client monies. The Future Fund will run checks to ensure the solicitor meets the requirements of the Future Fund.

Fortune Law meets the requirements set out by the Future Fund. We are happy to assist in advising and facilitating Future Fund applications.

Form of investment

In the Future Fund scheme, all Investors and the Future Fund enter into one convertible loan agreement (CLA) with the Company which matures 36 months from the date of the CLA. The CLA will be on mostly non-negotiable terms set out on the Future Fund website.

A convertible loan is a loan where if certain events occur, then the Investors and the Future Fund will be issued shares in the Company rather than being repaid the loan amount plus interest. Conversion of the loan may occur in a variety of circumstances, including fundraisings, exit events and upon the maturity of the Loans. The loans may alternatively be repaid on an exit event or at their maturity date either at the election of Investors and Future Fund or, in certain cases, automatically.

Most of the terms are non-negotiable. The only terms which can be negotiated between Investors are the Discount, Interest Rate, Valuation Cap, and Headroom Amount. It appears that the Future Fund will accept the decision of the Investors in regard to these terms, save that the Discount must be at least 20 percent and the Interest Rate must be at least 8 percent.

In addition, to the limited scope for negotiating terms, Investors and Companies should be aware that there are restrictions on the use of funds obtained through the Future Fund. The restrictions provide that the proceeds of the convertible loan agreement must not be used by the Company to:

  1. Repay any borrowings from a shareholder or a shareholder related party (other than the repayment of any borrowings pursuant to any bank or venture debt facilities);
  2. Pay any dividends or other distributions;
  3. For a period of twelve months from the date of the relevant convertible loan agreement, make any bonus or other discretionary payment to any employee, consultant or director of the company other than as contracted prior to the date hereof and as paid by the Company in the ordinary course of business; or
  4. Pay any advisory or placement fees or bonuses to any corporate finance entity or investment bank or similar service provider on monies advanced by the Future Fund.



One of the events in which the convertible loan may convert to equity is upon the issue of shares as part of a funding round. The Discount is the percentage discount that Investors and Future Fund will receive compared to the share price at which other shares in the Company are being issued (or have been issued in a previous funding round) if the loan converts to equity. So if the Company conducts a founding round in which it issues shares to new investors for £100 per share, then the Investors and Future Fund would receive shares at £80 per share – so they would receive more shares per pound than new investors.

Valuation cap

The valuation cap relates to the maximum price per share at which the CLA can convert. This means that if on a conversion event the price at which shares would otherwise be issued to the Investors and Future Fund would cause the valuation cap to be exceeded (after accounting for the Discount), the price per share will be adjusted downwards (and hence the Investors will receive more shares) in order to keep within the valuation cap. For example, suppose the CLA specifies a valuation cap of £75 per share and the Discount is the default 20%. The Company then issues shares at £100 per share, and the CLA converts to shares. Without a valuation cap Investors and the Future Fund would receive shares at £80 per share due to the 20% Discount. However, the valuation cap is £75 and so the Investors and Future Fund will receive shares at £75 per share. By contrast, if the valuation cap were £85 per share and the Company issued shares at £100 per share, the valuation cap would not be triggered because the Investors and Future Fund would receive their shares at £80 per share due to the 20% Discount.

Headroom amount

The headroom amount is the maximum amount of additional CLAs (on the same terms as the CLA with the Investors and Future Fund) from further investors that the Company may issue in a 90-day period following completion of the CLA transaction between the Company, Investors and the Future Fund. The headroom amount is agreed by the Company and Investors (other than the Future Fund) as part of the application and is included in the execution version of the CLA. If no headroom amount is agreed, the value will be zero. Such additional investment from further investors must be arranged by the Company outside of the portal and is not eligible for matched funding. This allows the Company raise further finance on the same terms as the CLA, but the Future Fund will not match these later investments.

For so long as the CLA loans are outstanding, the Company cannot take on more debt that has priority to the CLA debt without consent from the Investors. The exceptions to this rule include the Headroom amount, and certain types of debt raised on arms’ length terms.

The CLA is a sophisticated document and we would advise any Investor or Company who is contemplating applying for the Future Fund to seek professional advice.

SEIS and EIS consequences

HM Treasury and HMRC are yet to clarify a number of points regarding SEIS and EIS including whether the CLA will be eligible, how the CLA will affect the compatibility of future investments, and how the CLA will affect the eligibility of investments made prior to the CLA.

HMRC has confirmed that previous investments will not be affected where the convertible loan converts into shares. They have also signalled that they will make changes to the rules to clarify that the loan being repaid is also SEIS and EIS compatible but this has not occurred as of writing.


Eligibility criteria

Investors, the Company, and the Solicitor must all meet certain criteria.


Every investor must fall within any of the following categories:

  • an “investment professional” within the meaning given to that term in article 19 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (FPO)
  • a high net worth company, unincorporated associated or high value trust falling within article 49(2) of the FPO
  • a “certified sophisticated investor” or a “self-certified sophisticated investor” within the meaning given in articles 50 and 50A respectively of the FPO
  • a “certified high net worth individual” within the meaning of article 48 of the FPO
  • an equivalent professional, high-net worth, institutional or sophisticated investor in accordance with applicable law and regulation in such investor’s home jurisdiction
  • an association of high net-worth or sophisticated investors within the meaning of article 51 of the FPO
  • capable of being classified as a “professional client” within the meaning given in the glossary to the FCA Rules

It is the responsibility of each investor to ensure they are eligible.


To be eligible for the scheme, the company must meet the following criteria:

  • The company must have raised at least £250,000 in equity from third-party investors in previous funding rounds in the last five years (from 1 April 2015 to 19 April 2020, inclusive). Third-party investors are any investors except founders, employees, workers, or consultants of the Company and any of their connected persons (as defined by sections 1122 and 1123 Corporation Tax Act 2010).
  • If the company is a member of a corporate group, it must be the ultimate parent company.
  • The company does not have any of its shares or other securities listed on a regulated market, a multilateral trading facility, a recognised investment exchange and/or any other similar market, stock exchange or listing venue.
  • The company must be a UK incorporated limited company.
  • The company must have been incorporated on or before 31 December 2019.
  • At least one of the following must be true for the company:
  • Half or more employees are UK based;
  • Half or more revenues are from UK sales.


The solicitor must meet the following requirements:

  • be a practising UK regulated solicitor – registered with the relevant UK regulatory body; and
  • be permitted to hold client money and have a client account in accordance with the rules of the relevant UK regulatory body.

The regulatory body for England and Wales is the Solicitor’s Regulatory Authority (SRA). Fortune Law is registered with the SRA and permitted to hold client money in accordance with SRA rules. The other regulatory bodies are the Law Society of Scotland and, the Law Society of Northern Ireland.

Application process

The application process is a six-stage process

Stage 1: Discussion between Investor(s) and the Company

At this stage, the Investors and Company agree the amount of investment and the terms of the CLA. Once this is done, the Lead Investor provides information about itself, other Investors and the Company and the Company confirms the information about itself.

Stage 2: Selection of Solicitor

The Company will be asked to identify the nominated Solicitor who will be supporting it through the process and confirm that the Solicitor is able and willing to hold client monies. The Future Fund will check that the Solicitor is registered and authorised.

Stage 3: Formal appointment of Solicitor

The Company instructs the Solicitor and agrees the scope of services and advice that the Solicitor will provide.

Stage 4: Application decided, and key documents requested

The Future Fund reviews the application and if all the criteria are met, the application is approved. If the application is successful, the Company will be required to provide the Future Fund with a Director’s Certificate which confirms that:

  • The Company has raised at least £250,000 from third-party investors in the period from 1 April 2015 to 19 April 2020;
  • The board has the valid corporate authorisations to enter into the CLA and issue share if the loan is converted into equity; and
  • The Company obtained any necessary waivers and consents in respect of its outstanding debts.

In addition, the Company must send the Future Fund a signed but undated CLA.

Stage 5: Solicitor and Investors 

In this stage the Investors (except the Future Fund) send their investment monies to the Solicitor who will hold those funds pending Completion. When the Solicitor has received funds from every Investor, the Solicitor will inform the Future Fund that it holds the Investors’ funds.

Stage 6: Completion

Once the Future Fund has received:

  • the Director’s Certificate;
  • Solicitor’s Confirmation; and
  • all signatures on the CLA,

the Future Fund will sign the CLA and send funds to the Solicitor.

The Solicitor will then release all the funds (the Investors and the Future Fund’s) to the Company.



The Future Fund’s matched funding offer has the potential to help start-ups and other companies raise funds to allow them to survive and potentially grow through the Covid-19 pandemic. However, this is not free money, comes with restrictions and Companies and Investors should satisfy themselves that they are eligible and that the terms of the CLA proposed by the Future Fund are right for them.

Whether you are a Company or an Investor, we are happy to assist you in deciding whether to apply for the Future Fund CLA, and to assist you throughout the application process.



Future Fund website: https://www.uk-futurefund.co.uk/s/

Convertible loan agreement: https://british-business-bank.my.salesforce.com/sfc/p/#3z000002Naf6/a/3z000000MDFe/MQPBr0RySVNE.QGVZpNIUEkWu_2mbCNOSSGpx.oMxqA