UK’s £1.25bn support for start-ups met with mixed reactions

21 Apr 2020275 Views

London. Image: Photocreo Bednarek/Stock.adobe.com

The UK government has unveiled a start-up support package for innovation-led companies that are struggling due to the coronavirus pandemic.

This week, the UK government announced a £1.25bn support package to help British start-ups weather the coronavirus pandemic.

The news comes after France offered €4bn of support to start-ups at the end of March, and Germany arranged a start-up support package worth €2bn.

The UK package was announced on Sunday (19 April) by chancellor Rishi Sunak. He said that the scheme will help power the UK’s growth out of the coronavirus crisis while supporting start-ups that have set up shop in the country.

“This new, world-leading fund will mean they can access the capital they need at this difficult time, ensuring dynamic, fast-growing firms across all sectors will be able to continue to create new ideas and spread prosperity.”

Future Fund

The start-up support package includes two initiatives. The first is the £500m Future Fund loan scheme for high-growth start-ups, which will be available to early-stage venture-backed companies in the UK.

Applications will be open from May to September, with the UK government committing £250m and the private sector making up the other half of the scheme. The treasury said that it will constantly review the size of the fund, which is managed by the state-backed British Business Bank.

Eligible start-ups will be entitled to loans of £125,000 to £5m from the fund. The fund is only available to start-ups that have raised at least £250,000 from private investors within the last five years. The loans will convert to equity in a start-up’s next funding round, or at the end of the loan if the debt hasn’t been repaid.

The second part of the fund is £750m reserved for small and medium-sized firms focusing on research and development. Innovate UK will distribute this funding through grants and loans, and expects to make its first payments in mid-May.

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“Our start-ups and businesses driving research and development are one of our great economic strengths,” Sunak said.

‘Few start-ups will qualify’

While many start-ups have lobbied the UK government to introduce such measures and the new supports have been largely welcomed by entrepreneurs, others are sceptical. Writing for Sifted at the beginning of April, LocalGlobe co-founder Robin Klein argued against a bailout for start-ups.

Klein praised the support that the UK has offered start-ups over the years through the Enterprise Investment Scheme (EIS) and the government’s funding initiatives. However, he said in these circumstances “a bailout fund risks misdirecting much-needed capital to the wrong part of the economy”, adding that “few start-ups survive, even in the good times”.

Hannah Boland from the Telegraph suggested that the rescue package “could land the taxpayer with stakes in hundreds of loss-making ventures”.

Others were concerned that the package does not help bootstrapping start-ups that have grown a business without venture capital, as the funding is only available to businesses that have raised £250,000 or more. Anthony Rose of SeedLegals wrote that “few start-ups will qualify, and for those that do it’s a bad deal”.

European start-up support

Across Europe, other campaigning groups continue to seek support from European Commission president Ursula von der Leyen. Many tech industry groups believe that strong start-up support packages are essential during the current crisis.

A coalition of start-up communities led by Brussels-based Allied for Startups said: “When looking for solutions to combat and resolve the Covid-19 outbreak, but also when looking at where growth opportunities are coming from after the economic downturn, start-ups are they key actors in both equations.”

Scale Ireland, a non-profit that aims to provide a voice for innovation-led start-ups in Ireland, warned that “a generation of start-ups could be lost” if Ireland does not introduce a similar support scheme. The group is currently holding a survey, polling Irish start-up leaders on their feelings about existing supports.

Kelly Earley is a journalist with Siliconrepublic.com

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