This week, the British Business Bank disclosed 10 additional companies in which the Future Fund holds an equity interest. That gives them an equity interest in 711 companies with a total investment of £708 million as of June 30. That’s one company less than in the previous quarter.
The fund also shed 59 loans this quarter. It now has £131 million in loans to 152 companies, along with 71 cash realizations worth £71 million (up five realizations from the previous quarter). Its 258 insolvencies, up 56 for the quarter, are worth £226 million.
The British Business Bank said this slowing level of corporate activity is in part due to the majority of outstanding Future Fund loan recipients having decided on their three-year maturity option. All of the companies with outstanding loans have been contacted to set out the options available to them. As of June 30, 149 loans had been granted an extension of up to two years.
Companies in which the Future Fund now holds an equity interest include Enso, a London-based tire technology company making tires for electric vehicles to extend the range and reduce tire pollution; Lightox, a company that develops light-activated drug compounds targeting the treatment of early-stage mouth cancers, based in Newcastle upon Tyne; and Bristol-based XMOS, a fabless semiconductor manufacturer that provides chips for markets and products within the Internet of Things.
“The Future Fund was created at the height of the pandemic to ensure a flow of capital to companies that would otherwise have been unable to access government support schemes while ensuring long-term value for the UK taxpayer,” Ken Cooper, managing director of venture solutions for British Business Bank said. “As we have now passed the end of the initial three-year maturity period for all of the convertible loans issued, the majority of the portfolio has converted to equity interest and we are naturally seeing the rate of conversions decrease. Of the remaining companies with loans, the majority have decided to extend them for a further two years.”
Launched on May 20, 2020, the Future Fund issued 1,190 companies with convertible loans worth £1.14 billion. Third-party investors were required to match the Future Fund’s investment at least.
The Future Fund supported UK companies relying on equity investment to fund their growth. By creating a bridge to the next equity funding round, the Future Fund supported these companies through considerable economic disruption and recovery.
The scheme used a recognized financial instrument known as a convertible loan. Unlike an equity investment, there wasn’t a requirement under the convertible loan to value the company or the price of its shares, at a time when company valuations had been significantly impacted by COVID-19. Instead, the convertible loans are designed to convert into equity either at the next equity funding round or if the company is acquired through a sale or IPO.