News & Analysis

driven by the PitchBook Platform

Startups call for help as UK support lags behind other offerings in Europe

After Germany and France unlocked billions, the UK startup ecosystem is calling on its government to provide more protection to early-stage businesses during the coronavirus pandemic.

After Germany and France unlocked billions of euros for startups, founders and investors in the UK are calling on the government to do more to protect early-stage businesses hurt by the coronavirus pandemic.

A campaign called Save Our Startups, led by crowdfunding platform Crowdcube, said it gathered more than 2,000 signatures for an open letter to UK prime minister Boris Johnson. The letter warns that many of the UK’s almost 30,000 startups likely won’t be eligible for the government’s Coronavirus Business Interruption Loan Scheme, which aims to rescue small and medium-sized companies dealing with the crisis. More coronavirus news: Continuing coverage from PitchBook

In a blog post, Crowdcube co-founder Luke Lang said the UK response has been “sluggish” compared to other European countries, adding that “further delays are unforgivable and threaten thousands of promising startups and high-growth businesses with huge potential.”

Under the program, businesses with up to £45 million (about $55 million) in yearly sales can tap government financing of as much as £5 million over the next six years. The measure comes via government-backed commercial lenders.

The SOS petition, which is supported by CEOs of several VC-backed UK startups and investors such as Draper Esprit and Q Ventures, is demanding more help. The petition calls for an equity-based liquidity package to save startups at risk; fast-tracked government payments such as R&D tax credits and funding grants; and a change to rules for existing programs, like the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and the Venture Capital Trust, to stimulate investment.

Not everyone agrees, however, that more government support is the right route. “There are a lot of other small and medium-sized businesses that are suffering a lot more from COVID-19,” Hussein Kanji, a London-based partner at Hoxton Ventures, said in an email. “Why should the tech ecosystem get any sort of preferential treatment?”

The liquidity bridge

Some in the industry say that support is needed, but stress that government involvement should be limited, or at the very least temporary.

“I don’t think the solution is for the state to go in and automatically save all startups, just like it shouldn’t automatically go in and fully save any other company,” said Johan Svanström, a London-based partner at EQT Ventures. “What I think is important in a crisis like this is first [solving the issue of] liquidity,” he said, noting that while providing liquidity will not stop startups from going under, it could mitigate the impact.

Svanström said that state aid should act as a bridge, pointing to France and Germany as possible models for the UK. France has set in motion a €4 billion plan that includes short-term refinancing, early issuance of tax credits and the accelerated payment of already-planned investment in the VC sector.

Germany has opted to use VC firms to distribute €2 billion to struggling startups. It will also enable the umbrella funds KfW Group and the European Investment Fund to use public capital to replace money withdrawn by other investment funds.

“The details, the mechanics and the timing for [support] are still to be worked out in those countries, but the fact that it’s there, and people can apply for it, will drive clarity,” Svanström said. “I think the UK is yet to get to that point.”

UK companies aren’t alone in seeking more support. Last week, Belgium-based Allied for Startups wrote a similar open letter to the president of the European Commission, Ursula von der Leyen. The letter requested that the EU fast-track public funding to startups working on solutions to tackle the pandemic, postpone tax deadlines and provide bridge financing to startups that were in the process of raising new funding.

Comparing the UK to the rest of Europe is not easily done. Kanji notes that the UK’s status as the largest and healthiest tech ecosystem means that its startups are some of the best-capitalized in Europe. Even so, not all of them are immune.

“The UK government is injecting capital through the financial sector, but banks don’t lend to startups,” Kanji said. “I think the top 10% to 20% of startups will survive this crisis just fine, but there is a real risk that some of the UK’s promising scale-ups that haven’t yet raised big rounds may end up as casualties.”

Featured image via Leon Neal/Getty Images News

Join the more than 1.5 million industry professionals who get our daily newsletter!