Chancellor of the Exchequer Rishi Sunak has pledged £1.25bn to support UK startups struggling to survive during the Covid-19 pandemic, including funding for high-growth companies and a “Future Fund”.
This £500m Future Fund, created in in partnership with the British Business Bank, will see the UK government provide £250m. Eligible businesses will be able to access loans between £125,000 and £5m, which must be matched by private investors.
To be eligible, businesses must have raised at least £250,000 from private third-party investors in the last five years.
£750m of support for research and development-intensive small and medium-size businesses will also be available through Innovate UK’s grants and loan scheme.
Startup support, Future Fund cautiously welcomed by tech industry
The package of support for startups, including the Future Fund has been hesitantly welcomed by the tech industry, including Gerard Grech, chief executive of Tech Nation, the UK’s network for tech entrepreneurs.
“Tech startups and scaleups are crucial to the UK’s future growth, jobs and innovation. The £500m Future Fund and £750m for loans and grants for R&D for startups is a bold intervention, and although the full implementation details are to still be released, it is likely to give the sector a welcome boost in these unprecedented times,” said Grech.
“How to target the money effectively should be the next priority. Start-ups and scale-ups vary in their financial structuring and their regional location. It will be important to get the balance just right, across the UK and also across the different models of investments, from angel invested companies to VC-funded firms.”
Last month, Sunak announced a £330bn stimulus package, including Coronavirus Business Interruption Loans, as well as a scheme to support larger companies not eligible for loans. However, organisations from across the UK start-up ecosystem warned that this did not go far enough to support startups.
As startups are often lossmaking and therefore often do not qualify for Government loan guarantees, this funding was more beneficial to established businesses.
Earlier this month, 12 of the UK’s top tech companies, including Benevolent AI, Deliveroo, Citymapper and Babylon, wrote to the chancellor, warning that the UK tech sector, which will be “crucial to helping the UK economy bounce back after the pandemic”, will be put at risk unless “urgent changes are made to the current schemes”.
Acording to a survey by Tech London Advocates, more than 50% of London tech businesses will be prioritising survival in the next three months, with over a quarter saying they are looking for Government-guaranteed loans.
Investing at a time of “great uncertainty”
Others have highlighted how important such support for startups is at present, given the precarious nature of such businesses, even in normal times.
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“Startups and small businesses will be relieved to see the Treasury make this decision. All the evidence – albeit largely anecdotal at this stage – suggests that a great many startups are struggling to find the capital they need to stay afloat,” said Nic Redfern, finance director at KnowYourMoney.co.uk.
“With small or non-existent turnover, it is often incredibly difficult for startups to access business loans. This is a serious problem in the current climate and, as such, introducing solutions like co-investment and convertible loans must be welcomed.”
Redfern also highlighted how important the collaboration between the public and private sectors that the Future Fund requires was to the industry.
“Collaboration between the public and private sectors is more important than ever. And it seems the Government is now acutely aware that it must engage private investors, VCs and funds if it is to get enough capital to the promising startups who need it to survive,” he said.
However, John Milliken, CEO of Speechmatics, warned that the Future Fund will only be enough to help a small number of businesses, highlighting that private investors will be cautious in such uncertain times.
“Small, R&D led businesses have always played an important part in the UK economy. These businesses are working on solutions from AI drug testing to connected computing – many of which, if already in place would have softened the blow of Covid-19, so it is critical that these businesses survive and thrive to maintain our place on the global innovation stage when the skies start to clear after the pandemic,” said Milliken.
“A pot of £250m will likely stretch to less than 100 businesses however and the need for the money to be matched means that private investors will still have to convince themselves that these businesses are investable at a time of great uncertainty. This has been a problem since the start of the crisis and is likely to limit take-up of the initiative. Hopefully this is just a first move to prove out the viability of such a scheme.”