The HM Treasury is expected to announce a “startup rescue” package next week as pressure mounts on the government to help startups and loss-making companies whose funding pools have dried up since the start of Covid-19 coronavirus lockdown.
Chancellor Rishi Sunak first announced the Coronavirus Business Interruption Loans Scheme (CBILS) on 17 March, which allowed companies with a turnover of up to £45m to apply for a loan of up to £5m, which will be interest-free for a year and have the risk underwritten by the Treasury.
Although Sunak later extended the loan scheme by removing the condition that companies had to prove they were unable to get loans on commercial terms, it did little to help startups, whose lack of trading history prevents them from being considered a “viable” proposition by banks, said trade body Tech Nation at the time.
The measures now under discussion are centered around a co-investment strategy, whereby private funding will be matched by the Treasury with taxpayer money – the aim being to incentivise continued startup investment from venture capitalists (VCs) while also potentially giving the government shares in the enterprises in return for its investment, according to sources close to the discussions.
Computer Weekly also understands the government is looking at other European countries’ startup relief plans to see where there have been bottlenecks in getting cash out to the firms, so that delays in support can be reduced when the support is rolled out.
While the package has not yet been finalised, a number of technology industry bodies are actively involved in the discussions.
According to Daniel Korski, CEO of Public, an organisation set up to bridge the gap between startups and the public sector, the government must follow the lead of economies such as Germany and France, and immediately support early-stage companies who will now suffer from a “cliff-drop” in investment.
“These startups rely on smaller VCs and angel [investors] especially outside of London who don’t have much dry powder. Co-investment should be considered, but we have to accept that even more generous tax breaks for startup investing may not be enough as people will, quite naturally, conserve capital in a crisis we don’t know when will end,” he said.
The Save Our Startups (SOS) campaign, which has received more than 5,500 signatories since its launch earlier in April, warned Sunak in an open letter that if the government does not act now, Britain could “lose a generation startups and high growth businesses to Covid-19”.
Supported by a range of organisations – including Public, startup accelerator Level39 and tech policy campaign group Coadec – the SOS campaign has outlined a three-point plan that describes what it would like to see done to protect UK startups and high-growth businesses.
It includes an equity-based liquidity package, fast-tracking payments to startups from public-funding schemes (in particular research and development tax credits), and a revamp of government investment schemes to stimulate private equity investment.
Protect cashflows by reassessing supply and demand
According to analyst firm Forrester, which released The coronavirus crisis survival kit for startup entrepreneurs report on 6 April, any founder’s top priority must be to prevent the startup from running out of cash.
“For startups, the coronavirus crisis looks like an existential risk, and it is no doubt a short-term disaster for many. Over the medium and longer term, however, the stronger startups will benefit from the crisis,” it said.
“Many of today’s leading global firms such as Amazon, Google, or Salesforce grew up as startups during the dot.com crash in 2000 or the financial crisis in 2008.”
It added that clinging to long-term plans would be pointless in the current crisis, and that companies should instead develop several shorter-term options to reflect current circumstances.
According to Samuel McGuirk, UK country director for Madrid-based haulage startup OnTruck, the company began looking at the potential impacts of Covid-19 at the start of February so it could assess how its supply and demand was likely to shift over the coming weeks and months.
“What we did is basically anticipated that in some lanes there will be huge spikes in demand, and then pretty much everything else was going to reduce to zero for an unknown period of time,” he said.
“We shifted our focus into those core lanes where we believe the volume was going to have hyper growth, so a specific example of that would be canned goods.
“Every business in the world – whether it’s tech, traditional, or manufacturing – is all just based on supply and demand. You need to be understanding daily, ‘What is the demand, where is it, and how is it changing?’”
So far the company has not had to rely on the government for financial support, although McGuirk stressed the impacts of the coronavirus outbreak are not limited to now or the end of quarantine, instead representing an 18-month to two-year challenge for enterprises.