Let’s Not Lose A Generation Of Innovative Start-Ups
London was home to over 205,000 start-ups, more than 70 incubators and accelerators, and in excess of 156 co-working spaces in 2018.
Eight years after the then ECB President Mario Draghi saved the euro with three words, ‘whatever it takes’ is again a sentence on every self-respected politician’s lips. Roxana Mohammadian-Molina argues that a generation of start-ups are left out in the cold by existing support measures and could collapse unless new policies are put in place to help them.
The media focus is rightly on the public health crisis resulting from Covid19 and the human impact it is having on communities around the world. But as governments race to put their economies on life support by hooking them up to the biggest public help package in modern history, another silent killer virus is threatening our start-up ecosystem: bankruptcy. The Government must act now to keep our start-ups from falling dangerously ill and stop a generation of innovative start-ups and high growth businesses being whipped out because no bank and no government support programme is geared towards these companies.
The Government’s Coronavirus Business Interruption Loan Scheme (CBILS) announced on 23 March is, in theory, available for SMEs through more than 40 accredited lenders. Yet the reality is that one of the CBILS’s key eligibility conditions, to have a borrowing proposal which the lender would consider viable were it not for Covid19, means that many of the 30,000 start-ups and high-growth businesses in the UK, who employ nearly 330,000 people, do not qualify for existing support measures because they are loss-making. Therefore, many small businesses could collapse unless new policies are put in place to support them.
Across Europe, countries are already racing to save their tech start-ups. Indeed, France and Germany have already committed to providing financial support in the form of a liquidity plan to help their start-up’s cash flows. Meanwhile Allied for Start-ups, a worldwide network of start-up support advocacy organisations, has strongly called for the EU to better coordinate its start-up relief program.
Here in the UK, London was home to over 205,000 start-ups, more than 70 incubators and accelerators, and in excess of 156 co-working spaces in 2018. Most have been left in distress as a result of Covid19; many will sadly never recover. Thus, I urge the UK Government to acknowledge the mayday call and adopt a vigorous action plan to help its start-ups continue operating. As post-Brexit Britain starts its search for new global role, tech has a key role to play in promoting the UK to the forefront of global tech and innovation. It is therefore paramount to support those start-ups to avoid losing an entire generation of British start-ups and high growth businesses to Covid19.
I am a strong supporter of a two-speed government-backed financial assistance program: a short-term program targeted to prop-up the liquidity and a longer-term fund to ensure start-ups get back on their feet and continue to grow once the crisis is over.
In the short-term, let’s not forget that what makes this unprecedented volatile episode in financial markets different to previous ones, is the fact that it is composed of a series of shocks to the global economy rather than a single event. What started as a China-centric demand shock, has quickly turned into a global demand shock and is now infecting credit markets. Thus, the initial blow is risking being compounded by a global credit and liquidity shock. Given the late-cycle and highly leveraged state of many start-ups, rapid and unexpected changes to start-up revenues have the potential to meaningfully change their ability to service the debt on corporate balance sheets in start-ups operating in sectors not only directly affected by the outbreak (like travel and leisure), but also in sectors that will be impacted by the broader economic slowdown. Therefore, a short-term program to help start-ups overcome the liquidity squeeze is key.
In the long-term, one proposed idea is that of a fund that allocate loans to start-ups that then convert into equity stakes at a company’s next financing round. This may be executed through the UK’s Business Growth Fund, which has a network of branches around the country and is owned by five banks.
The Government undoubtedly faces numerous challenges at such testing times, but it also faces an unprecedented opportunity to ensure that British start-ups remain at the forefront of global tech and innovation in a post-Brexit and post-Covid world.
