Tech startups raising funds for the first time have seen a sharp fall in investment while lockdown measures have been in place.
This is according to research by innovation centre and workspace Plexal, which has analysed startups and fast-growth businesses to understand investment activity since lockdown measures were announced on 23 March in the UK.
While investors are still backing UK tech, startups embarking on their first funding round have faced difficulties during the pandemic. UK tech startups have raised £1bn since lockdown, but only £52m has gone to first-time startups.
Plexal’s analysis found that there have been 61 deals for first-time tech startups, a 20% fall year-on-year. The total amount invested in first-time tech startups has been £52m, meaning that on average less than £1m is being invested in each company.
Earlier this week, applications opened for the UK government’s Future Fund, which provides convertible loans to startups affected by the Covid-19 pandemic. Loans of between £125,000 and £5m will be available applicants, but must be matched by private investors.
For UK tech startups as a whole, the second half of lockdown has seen a 73% drop in funding, compared with a 37% increase for the first four weeks. This suggests that despite an initial rise in investment activity, this has slowed considerably.
However, there have been some success stories. The biggest investments in tech startups since lockdown has included used car sales website Cazoo, and facial biometrics identification startup Onfido, which have both raised £100m.
Andrew Roughan, managing director of Plexal said:
“While tech companies are still raising funding in the UK, we risk losing a generation of tech entrepreneurs at the earliest stages of their startup journey. The research shows that government support can’t come soon enough for the early-stage tech companies that are unable to raise investment as a result of Covid-19.
“By only backing companies that have already raised funds, investors are ignoring the very companies that will define the future success of the British economy.”