Future Fund Breakthrough Update

Update on Future Fund: Breakthrough

27 July 2021 

It’s been a little while since we checked in about the Government’s company funding support plans, but with an update from Rishi Sunak just last week, it’s time for another debrief.

It’s official: applications for the Future Fund: Breakthrough scheme are now… open! 

 

What is the Future Fund Breakthrough?

Chancellor Rishi Sunak has set up a scheme whereby the government will commit £375 million of funding to UK based Research & Development intensive companies as a response to the Covid-19 crisis. It’s called Future Fund: Breakthrough, and it serves as an invaluable injection of cash for growing businesses. Fast-growing firms looking to make use of the fund will need to raise at least £30 million of investment to benefit from the fund.

Since we last reported on this, the Future Fund Breakthrough (or FF:B) scheme has emerged in full force to replace the Future Fund set-up from March. It has been hailed as, “a move designed to super charge the UK’s post-pandemic economy.”

The scheme will be delivered by British Business Bank deploying government capital alongside private sector investment. Eager to know more? Sunak will be hosting a tech conference in east London in September, under the banner “Treasury Connect”, to bring together investors and business leaders in tech.

Unfortunately, for smaller businesses who do not work in research and development, this new scheme is likely to only benefit a handful of high growth, intensive businesses. Let’s look into the criteria in a bit more detail.

 

Eligibility Criteria

As a company, you have to be able to tick all of the following boxes before pressing ‘send’ on that application. Do you have:

  • A minimum total investment round size of £30m;
  • Commitments of 70% of an investment round from private investors with a track record of financing innovative companies (e.g. Venture Capitalists);
  • At least £5m in previous funding rounds raised;
  • A UK base with significant UK operations;
    • Significant UK operations = at least half of the companies’ overall employment base and research employees must be based in the UK
  • Evidence that you have been carrying out R&D activity in the UK by meeting all three of the following criteria:
    • R&D spending (as defined by pre-set accounting rules) will have been at least 10% of total operational cost base on average over the last 3 years or at least 15% in one of the past 3 years.
    • Company is developing defensible intellectual property in the UK which they expect to be the company’s main revenue source.
    • Company intends that 20% or more employees will be carrying out research for at least 3 years from the date of investment, in roles that require a relevant master’s degree or higher; and
  • A lead investor (not the company itself) – can be new or existing investor – to make the application.

According to the British Business Bank, “The lead investor does not have to be the largest investor in the round but is expected to contribute a significant amount to the investment round and meet the lead investor criteria.”

If you think your company might be eligible for this scheme, or to find out more information, please click here.

 

(Find and) Follow the Leader

So you’ll need a lead investor, that much is clear. But what does this person look like? The British Business Bank have helpfully included criteria to be met. You’ll need to find out if they’ve got investments in:

  • Any fund managed or advised by an FCA (or equivalent) authorised firm with private sector investment making up greater than 50% of the total fund size and who is currently managing an active fund greater than £100m. The fund must have raised capital from at least three independent Limited Partnerships (or equivalent) and the fund must have a written investment strategy that aligns with the FF:B investment strategy.
  • Any fund or investment vehicle with an appropriate investment strategy, managed or advised by a fund manager which has applied to and obtained an investment from a member of the British Business Bank group. For example, those supported by British Patient Capital and by the Enterprise Capital Funds programme.
  • Other equivalent investment vehicles i.e. those with greater than £100m of investment capital, a broad range of independent investors, and an appropriate investment strategy, where these have been approved by FF:B.

If you’re an investor, or want to know more about the application process, please click here.

 

In Rishi Sunak’s Own Words

Sunak recently released a video explaining the design and breakdown of the new FF:B scheme. He emphasises the separation between FF and FF:B. It’s crucial that businesses are not misled or confused: FF:B was inspired by, but is not linked to FF.

FF provided over £1b support to help companies continue innovating since the impact of Covid-19, and now the Government are setting their sights on supporting bigger fish to fry. In Sunak’s own words, “These [R&D] companies are leading the way in developing innovative technologies that… transform the way that established businesses operate day to day.” We’re all for disrupting the industry and have been proud to advise and support a number of companies in their journey through FF and other investment opportunities these past few months.

Sunak also described these R&D tech companies as “essential” as “Technology and innovation will be at the heart of our future economy”. With this in mind, FF:B will help to commercialise products such as “new medicines and green technologies that could change our lives for the better.” No complaints here.

If you’re wondering whether you’ll be able to benefit, never fear. Those who took part in the original FF scheme can still apply for funding from the FF:B – the business history has no bearing on eligibility, just the criteria.

 

Investment Process

As a result of Covid, we are seeing more and more interim financing measures being applied to gather emergency funding, such as convertible loan notes and share subscriptions. The FF:B will likely be viewed as an innovative new way to secure quick funding from reliable resources, even if the company has previously benefitted from the FF scheme.

A typical investment under the FF:B scheme will be an equity investment, with FF:B investing on commercial and no less favourable terms than the lead investor. FF:B will invest up to 30% of a funding round. Investment decisions will be made by the British Patient Capital Investment Committee.

Only time will tell whether this scheme is embraced as a success, and details of the deadline for applications or how long the scheme will run have not yet been released.

However, not to worry, we’ll make sure to keep you updated. 

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