Following lobbying by a number of the UK’s largest and most influential start-ups, as well as various representations being made by a host of bodies who seek to support these companies, the Chancellor has announced an initial scheme to assist entrepreneurial businesses  impacted by the coronavirus crisis, and there is likely to be more to come.

This scheme, which will initially be open until September 2020, looks to offer £1.25 billion of funding to these companies which the Government see as being critical in the UK’s recovery after the coronavirus. However, and as is now standard with such support measures, the devil is in the detail and care will need to be taken to understand whether a company will qualify, how much a company can qualify for, and of course the impact of the proposed commercial terms of the support. £750 million of this support package will be delivered through Innovate UK, and we understand that this will firstly be available to existing Innovate UK customers.

Some of the key terms for unlocking these funds are summarised as follows:

1. You need to match the Government funding with private funding, so it is operating like a co-invest, and as such the Government funding will not be in excess of 50% of the total funding round.
2. You need to have raised £250k of investment from private third-party investors in the last five years.
3. The bride funding is being structured as a convertible loan note, automatically converting into equity at a minimum discount of 20% at the next funding round. There are more complicated rules should a sale/IPO occur before that next funding round or if the maturity date (maximum 36 months) is reached – including the potential for the convertible loan note to be repaid (beware, potential implications for EIS shareholders!).
4. Interest rate will be a minimum of 8%, which is clearly well ahead of current market rates.
5. There are also provisions for negative pledges, and the need to understand the class of shares the convertible loan note will convert into.
6. There are certain actions that cannot be taken with the cash received, including the repayment of existing debt, and paying dividends/bonuses.

How we can help

At Johnston Carmichael we welcome this first move by the Chancellor to introduce this support package for start-up companies. We can offer support in a number of ways, from helping you understand the scheme in more detail and keeping you updated as we hear and see more, to understanding impact on your share capital table and potentially valuable SEIS/EIS relief investments (both prior and prospective). Get in touch with me, Andrew Holloway, to arrange an initial chat.