Form Ventures explainer: UK government Future Fund

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1	Form Ventures explainer: the UK government Future Fund					formventures.vc
2	On Mon 18th May the government released the final term sheet and detailed FAQs. They are linked below and the guide has been updated. Let us know if we've missed anything!
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4	Key financial terms					Click here to tweet this guide
5	Docs & guidance links	New final term sheet (18 May)	New detail incl FAQs on BBB website (18 May)			leo@formventures.vc
6	Eligibility	Unlisted UK reg'd topco, 50%+ UK turnover or headcount, raised at least £250k equity from private investors in 5 yrs prior to 19 Apr 2020				@leoringer
7	Loan size	£125k - £5m (govt); matched 50%+ by non EIS private investors (but unlimited); & 90 days post-agreement to close additional funds (not also matched)				patrick@formventures.vc
8	Maximum loan length	36 months				@patrick_newton1
9	Discount Rate	20%, unless a higher rate agreed by matched investors
10	Interest	8% non-compounding, unless a higher rate agreed by matched investors				About Form Ventures
11	Conversion Valuation Cap	None, unless agreed by matched investors				Form is a UK seed VC fund backing founders taking on markets shaped by regulation and policy. We're the only fund outside the US dedicated to helping startups navigate these complex sources of risk & opportunity.
12	Conversion share class	Always the most senior share class issued in converting round, and any subsequent round within six months
13	Repayment	Cannot be repaid at choice of startup; only in some circumstances (see 'repayment' column below)
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15	What happens when?
16	Event	What is it	What happens	Any decision?	Conversion	Repayment
17	Startup raises 'qualifying' funding round ('financing')	Funding round where new equity capital raised after the loan note is issued and before the maturity date, is equal to or greater than the loan note value. Excludes shares issued in respect of employee share option schemes or any conversions related to the Future Fund loan note	Loan note automatically converted	No - automatic	At Discount Rate to equity price of the qualifying round Or at Valuation Cap if lower and one is in place	Company right to repay accrued interest in cash - if not repaid, converts without discount
18	Startup raises 'non-qualifying' funding round ('financing')	Funding round where new equity capital raised after the loan note is issued and before the maturity date, where this is less than the value of the loan note. Excludes shares issued in respect of employee share option schemes or any conversions related to the Future Fund loan note	Loan note can be converted	Decision determined by a simple majority of matched (private) investors in loan note OR if amount raised is less than 25% the value of the loan note, then decision is by majority of matched investors and govt	At Discount Rate to equity price of the non-qualifying round Or at Valuation Cap if lower and one is in place	Company right to repay accrued interest in cash - if not repaid, converts without discount
19	Startup takes another loan note	The company issues another loan note, subsequent to the Future Fund loan note, and those subsequent investors get "more favourable terms"	The Future Fund loan note is automatically upgraded to match those terms	No - automatic	N/A	N/A
20	Sale or IPO of startup ('exit')	Startup is acquired or IPOs	EITHER loan note converted OR loan note repaid with a 100% redemption premium	Determined by whichever value is higher (conversion or repayment with premium). Conversion value will only be lower if startup raising a 'down round'	If higher than repayment value, at a price equal to lowest price paid by an investor in the then most recent round where the company: a) raises an amount >25% of the amount of the total loan note amount (govt and private together) - applying the Discount Rate, or if not, b) raised capital before 20 April 2020, excluding any share option schemes, to which the Discount Rate doesn't apply Or at Valuation Cap if lower and one is in place	If higher than conversion value, the combination of: the original loan note amount, 8% annual interest and a 100% premium on the original amount. OR if conversion happens, company right to repay accrued interest in cash (8% non compounding) - if not repaid, converts without discount
21	Sale or IPO of startup ('exit') within six months of a non qualifying round having taken place, at which the investors decided to convert	Startup is acquired or IPOs, within six months of a non qualifying round (see above) at which the lenders decide to convert the note into shares rather than hold onto it	Investors get 'consideration' (shares or otherwise) at the higher of: a) the level they would have got if, at the recent non qualifying round, the loan been repaid with the 100% redemption premium (rather than having converted) OR b) the amount they are getting for their shares at this exit (having converted at the previous round)	Determined by whichever value is higher	N/A - conversion has already happened in this scenario	If higher than the amount investors are getting on exit, the combination of: the original loan note amount, 8% annual interest and a 100% premium on the original amount.
22	Loan note reaches maturity after 36 months	Loan note reaches the 36 month point without having converted or been repaid (upon sale or IPO)	EITHER loan note converted OR loan note repaid with a 100% redemption premium	For the matched (private) investors: decision determined by a simple majority of them For the govt: at their choice	If higher than repayment value, at a price equal to lowest price paid by an investor in the then most recent round where the company: a) raises an amount >25% of the amount of the total loan note amount (govt and private together) - applying the Discount Rate b) raised capital before 20 April 2020, excluding any share option schemes, to which the Discount Rate doesn't apply Or at Valuation Cap if lower and one is in place	If chosen, the combination of: the original loan note amount, 8% annual interest and a 100% premium on the original amount. OR if conversion happens, company can repay accrued interest in cash (8% non compounding) - if not repaid, converts without discount Government can choose repayment even if matched investors choose conversion.
23	Sale of loan note or converted shares	Government sells shares, once converted. Any investor (incl govt) sells its share of the loan note Government transfers its share ot the loan note to another govt entity	Govt sale of shares must be to an institutional investor buying a stake in more than 10 Future Fund backed companies. Doesn't trigger pre-emption rights of other shareholders. Any sale of share in loan note permitted only insofar as company articles allow it for the most senior class of shares (e.g. probably triggers pre-emption rights). Govt transfer of loan note to another govt entity doesn't trigger pre-emption rights.	Govt sale of shares can only happen once loan has converted into shares. Sale of loan notes can be at any time before conversion or repayment.	N/A	N/A
24	Company defaults ('event of default')	Company stops paying its debts, enters a debt restructuring agreement with creditors, is wound up, goes into liquidation, or breaches any of the covenants and warrants that are part of the future fund loan note	Loan has to be repaid, in cash	No. But only govt can demand repayment if a certain subset of the covenants entered into, as part of the loan note, are breached or cease to apply	N/A	The combination of: the original loan note amount, 8% annual interest and a 100% premium on the original amount. Must be in cash.
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