UK Future Fund: Conversions, Rounds and Exits for Startups

If your company took investment under the UK Future Fund during the pandemic, you’re not alone - thousands of high-growth startups relied on that matched funding to stay alive and keep building.

The scheme is now closed to new applicants. But the legal and commercial effects are still very real for founders today, from upcoming conversion triggers to negotiating new rounds and preparing for exits.

In this guide, we’ll explain how the UK Future Fund worked in practice, what the standard terms usually mean for your cap table, and the steps you should take as you approach conversions, follow-on raises or a sale. We’ll also cover the approvals and documents you’ll typically need so you’re protected from day one in your next phase of growth.

What Was The UK Future Fund?

The UK Future Fund was a government-backed investment programme launched in 2020 and operated by the British Business Bank. It provided matched funding to UK companies via convertible loans, on broadly standardised terms, provided you raised the same (or more) from private investors in that round.

Key features at launch included minimum aggregate investment, a UK-incorporated company, and an investor match. The cash came through a convertible loan instrument rather than equity, meaning it would convert into shares in certain scenarios (such as a qualifying funding round) or be repayable at maturity if it didn’t convert.

The scheme closed to new applications in 2021. However, outstanding loans continue to sit on cap tables and will either convert or be repaid based on the contractual terms agreed at the time.

Is The UK Future Fund Still Open? What It Means If You Already Have One

No - the UK Future Fund is closed. You can’t apply for new matched funding. If your company already received a Future Fund loan, you still need to manage the instrument through to an outcome. That typically means one of the following:

• Automatic conversion on a qualifying funding round (usually defined by a minimum cash size raised from new investors), at a discount to the round price and often subject to any valuation cap in your instrument.
• Optional conversion on a non-qualifying round (e.g., a smaller raise), at the investor’s option.
• Conversion on maturity if no round occurs by the long-stop date, typically at the discount to a price derived from the most recent valuation or a default formula.
• Redemption at maturity (plus accrued interest) if the investors choose not to convert.
• Conversion on exit (e.g., sale or IPO) immediately before completion, again applying the agreed discount and any cap.

It’s common for these instruments to have additional terms like a most favoured nation (MFN), information rights, and negative covenants (e.g., restrictions on dividends or senior debt without investor consent). Make sure you review your instrument carefully - round-to-round differences matter.

How Future Fund Convertible Loans Typically Worked

While each instrument can vary, Future Fund loans tended to follow a standard structure. In plain English, here’s what those terms usually mean for you as a founder.

Discount And Valuation Cap

The loan converts into equity at a discount to the next round’s price per share (for example, a 20% discount means the loan converts at 80% of the round price). Some instruments also include a valuation cap, which sets a maximum pre-money valuation for purposes of the conversion price - whichever gives the investors a better price (discount vs. cap) applies.

Interest And Accrual

Interest accrues (often at a fixed percentage) and is typically not paid in cash; instead, it converts into equity alongside the principal. That increases dilution on conversion.

Maturity And Redemption

The loan has a maturity date (e.g., 36 months). If there’s no qualifying round by then, investors can usually choose to convert at a default price or redeem (demand repayment) plus accrued interest. Whether conversion or redemption happens at maturity often depends on investor election and the instrument’s exact language.

Investor Protections

Expect standard investor rights: information undertakings, restrictions on certain corporate actions without consent (like issuing senior debt or varying class rights), and MFN clauses that let investors opt into better terms you offer to later noteholders. If you plan a new bridge, the MFN can be a crucial negotiation point.

Interaction With EIS/SEIS

Shares issued on conversion of a convertible loan of this type generally don’t qualify for EIS/SEIS relief. That can influence how you design your next round and whether you consider a non-debt instrument such as an ASA. For non-debt equity bridges, many founders now prefer an Advanced Subscription Agreement over a debt-like note to preserve investor tax reliefs where possible.

Legal Steps To Manage Your Future Fund Note

As you approach the next milestone (raise, maturity or exit), getting your legal foundations right early will save you headaches later. Here’s a practical checklist.

1) Locate And Review The Instrument

• Confirm the conversion mechanics, the discount, any valuation cap and whether interest is simple or compounding.
• Check consent thresholds and veto matters to avoid accidental breaches (for example, taking senior debt may require prior consent).
• Identify any MFN rights and how they interact with new notes or bridges.

Don’t rely on memory - details vary. If you’re weighing bridge options, it can help to compare your loan with a standard Convertible Note or an ASA so you understand trade-offs.

2) Map Your Cap Table And Scenarios

• Model conversion at different round sizes and prices (with and without the cap) to see dilution.
• Include accrued interest - it usually converts too.
• Build an exit case (sale or IPO) to understand pre-completion conversion impacts.

Investors will expect you to know the dilution maths. A simple, clean model can also help align the board around strategy before you share a Term Sheet with new investors.

3) Line Up Corporate Approvals

Conversions, new share issues and any Articles updates need proper approvals. In practice, you’ll usually need board minutes and the right shareholder resolutions. Knowing when you need an ordinary vs a special resolution can avoid delays, so revisit the basics on ordinary vs special resolutions and plan your timeline accordingly.

For day-to-day board actions, having a clear directors’ resolution template helps you keep records tidy for investors and due diligence.

4) Coordinate With Articles And Shareholders’ Rights

Future Fund conversions often create a new share class (e.g., a series of preferred shares). Ensure your Articles of Association support the rights that will be attached on conversion. If you’re re-cutting investor protections or updating your governance, align those changes with a robust Shareholders Agreement at the same time - doing both together can reduce future re-papering.

5) Communicate Early With Investors

Good communication reduces friction. If you’re planning a raise that will trigger conversion, share a financing timeline, the modelled outcomes, and any proposed amendments (for example, extending maturity or adjusting consent matters). Where appropriate, a short variation or side letter can tidy up practical gaps - especially around MFN or information rights.

6) Watch For Events Of Default

If your instrument has default triggers (missed reporting, insolvency steps, covenant breaches), bake compliance into your finance calendar. If something goes wrong, address it proactively. Understanding typical events of default can help you de-risk the process.

Raising New Money After A Future Fund Round

When you raise again, your Future Fund instrument shapes the options. Here are the issues most founders face.

Qualifying Funding Round

If your next round meets the “qualifying” threshold in the instrument, conversion should happen automatically at completion. Practically, you’ll include conversion mechanics in your closing checklist, allocate the new share class, and update the cap table and Companies House filings.

Non-Qualifying Round Or Bridge

Smaller rounds often require investor consent to convert, or the note may remain outstanding. Founders sometimes stack a new bridge on top; be alert to MFN clauses that allow existing noteholders to opt into any better terms. If your incoming investors prefer equity without debt features, consider an ASA vs SAFE comparison to settle on instrument choice early.

EIS/SEIS Considerations

Many angels will want EIS/SEIS eligibility on new subscriptions. Because conversion shares from a debt-like note typically don’t qualify, you may structure the round so new cash subscriptions (for new investors) are EIS/SEIS-compliant, while the conversion happens in parallel on its own terms. Work closely with tax advisers here - sequencing matters.

Option Pools And EMI

Conversions can compress headroom for your option pool. If you expect to hire and need incentives, refresh the pool as part of the round and consider implementing EMI options for tax-efficient employee equity.

Governance And Consents

Check consent thresholds under your existing investor documents. New preference rights, debt ranking, or changes to class rights may require class consents as well as overall shareholder approval. Build that into your transaction timetable.

Exits, Maturities And Buybacks: Planning For Endgames

If you’re heading toward an exit or the note is approaching maturity, timing and paperwork become critical.

Sale Or IPO (Change Of Control)

Most Future Fund instruments convert immediately before completion of a sale or IPO. That means the loanholders become shareholders just before the transaction closes, then sell alongside everyone else or roll into the listed entity. Make sure your sale documents reflect that step - it’s often dealt with in the conditions precedent and the mechanics for allocating consideration.

Maturity Approaching

With maturity on the horizon, you generally have three paths: raise a round that triggers conversion; agree an extension via a deed of variation; or prepare to redeem. If redemption is likely, forecast cash needs early and stress test covenants in any existing senior facilities.

Buybacks And Secondaries

Post-conversion, you might look to tidy up your cap table or create liquidity. A targeted buyback or a shareholder-to-investor Share Sale Agreement can achieve that. For company-led repurchases, you’ll need to follow the Companies Act procedures and use a proper Share Buyback Agreement with the right shareholder approvals.

What Documents And Approvals Will You Need?

Your exact list depends on your instrument, Articles and the transaction. Common items include:

• Board minutes approving the transaction, share issue and any filings.
• Shareholder resolutions (ordinary or special) where required for new classes, disapplication of pre-emption or Articles updates - recap on ordinary vs special resolutions if needed.
• Updated Articles creating or aligning investor rights and preferences, which may require a full Articles of Association refresh.
• Financing documents such as a Term Sheet, subscription documents, and any side letters.
• Shareholders Agreement or amendments to align governance, information rights, transfer restrictions and pre-emption across your investor base - a consolidated Shareholders Agreement avoids a patchwork of older terms.
• Companies House filings for share allotments, Articles changes and PSC updates.

If you’re weighing your next instrument choice for an interim bridge, revisit the pros and cons in loans vs loan notes before you commit - the wrong structure can complicate EIS/SEIS or rank poorly behind senior debt.

Common Pitfalls We See (And How To Avoid Them)

• Forgetting accrued interest: it usually converts and can materially change dilution - include it in every scenario you show investors.
• MFN surprises: offering sweeter terms to new noteholders can “flow back” to earlier investors - map MFN exposure before you issue anything new.
• Articles don’t match the term sheet: if you’re introducing new preferences or conversion mechanics, ensure the Articles reflect them exactly to avoid enforceability gaps.
• Missing consents: senior debt, share buybacks and class rights changes often need bespoke consents - start your consent process early.
• Pre-emption missteps: disapplying pre-emption (where appropriate) needs the right shareholder resolution; get the sequencing right in your approvals pack.
• Post-close admin slips: make Companies House filings promptly and update the register - sloppy records create issues in diligence.

Alternatives To The Future Fund For New Funding

While you can’t access the UK Future Fund anymore, there are still flexible ways to bridge to your next priced round:

• Convertible notes for speed and alignment on price discovery, especially if tax reliefs aren’t critical - see a standard Convertible Note structure.
• ASAs (advanced subscription) for equity-only bridges designed to support EIS/SEIS eligibility - our Advanced Subscription Agreement service covers the key terms.
• Seed or Series A priced rounds with a clean Term Sheet, updated Articles and a consolidated Shareholders Agreement.

The right choice depends on runway, investor mix and tax strategy. It’s wise to seek tailored advice from a legal expert who can assess your unique circumstances.

Key Takeaways

• The UK Future Fund has closed, but existing loans remain active and will convert or redeem based on your instrument’s terms - know your discount, any valuation cap, interest accrual and maturity mechanics.
• Plan early for your next step (raise, maturity or exit): model dilution including accrued interest, line up board and shareholder approvals, and coordinate your Articles and investor rights.
• Watch for MFN clauses, consent requirements and events of default - small paperwork lapses can trigger big problems during financing or diligence.
• If you’re raising again, consider whether a convertible note or an ASA better fits EIS/SEIS and investor expectations, and document the deal with a clear Term Sheet and updated governance.
• Expect to update your Articles of Association and your Shareholders Agreement to keep protections, information rights and pre-emption consistent across your cap table.
• For buybacks, secondaries or exits, build the conversion mechanics into your closing steps and follow Companies Act formalities with the correct approvals and filings.

If you’d like help reviewing your Future Fund instrument, planning your next round or preparing the right documents and approvals, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.