Chancellor Rishi Sunak has launched the sequel to last year’s Future Fund: Breakthrough (FF:B). It’s a new £375m UK-wide scheme which will encourage private investors to co-invest with the government in high-growth, innovative firms.
The name Future Fund is a bit misleading. Unlike the original scheme, which we campaigned for through the Save our Startups campaign, this does not provide matched Convertible Loan Notes. Breakthrough is a targeted co-investment fund aimed at growth stage innovative, R&D-intensive UK companies.
Research and development intensive businesses receiving an investment round of £30m or more will be able to access co-investment from British Patient Capital. The maximum stake the FF:B will take is 30% so the minimum amount of private investment you need to receive is £21m.
To qualify, businesses need to have received at least £5m in prior investment and be R&D intensive.
This means the company must be 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) must 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.
Unlike the original Future Fund where investors could self-certify, there are more controls on who can invest as a lead investor.
The lead investor can be:
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 LPs (or equivalent) and have a written investment strategy that aligns with the investment strategy of FF:B;
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 British Business Bank’s Enterprise Capital Funds programme.
Other investment vehicles with a minimum of £100m of investment capital, a broad range of independent investors (at least 3), a demonstrable track record and an appropriate investment strategy where these have been approved by FF:B
Tax-advantaged investors will be able to invest as part of a syndicate but they will not be able to be the lead investor.
You can find out more information about the fund here.