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Confidence of UK startups rocked by coronavirus

Firms worry how to keep sales up and secure investment during pandemic

Confidence levels among the UK’s technology startups have declined dramatically since the onset of the Covid-19 coronavirus pandemic, according to quarterly survey results.

The Tech Tracker survey, which quizzed 107 C-Suite level respondents working at UK tech startups, was conducted by London-based digital agency Studio Graphene, which works with startups and innovation teams in established companies to plan, design and build technology products.

It found that only 32% are “confident” or “very confident” that their turnover will grow in the year ahead, marking a 44% drop since the last quarter and an annual drop of 47% from when the first Tech Tracker survey was conducted in March 2019.

It said more than half (54%) are “very worried” about the impact Covid-19 will have on their business, and 37% are “slightly worried”.

When asked specifically whether they felt their business was well prepared to withstand any potential fallout from the pandemic, 35% said no and 23% said they did not know.

The onset of the pandemic has also altered many firms’ expansion plans. For example, although 58% intend to hire more staff over the coming year, this is down 19%  from the previous quarter. Quarter-on-quarter, there has also been a 7% decline in those hoping to raise investment, and an 18% drop in those planning to expand to new territories.

“We launched the Tech Tracker survey 12 months ago to see how tech firms were responding to Brexit and the general pains of growing a business,” said Ritam Gandhi, founder and director of Studio Graphene. “But everything has been turned upside down. Today’s data shows just how damaging the coronavirus has been to business confidence.

“With smaller reserves and less nascent customer bases to fall back on, it is understandable that many startups will be concerned about what the coming months will bring. But startups are also well placed to weather this storm. They are nimble, agile and able to respond to the challenges that arise on a day-by-day basis.”

Gandhi added that demand for technology is higher than ever, with both consumers and businesses looking for innovative solutions to current problems, so there are still opportunities for startups that are able to pivot.

For most startups, hiring the right talent has taken a back seat during the pandemic, with a 45% decline in startups citing this as a major barrier to growth since the last quarter.

Instead, 61% of respondents cited increasing sales as the main barrier to growth over the next 12 months, and 47% expressed concern about being able to secure private investment.

Asked whether they were confident in the UK government’s ability to support tech enterprises during the pandemic, 69% responded negatively.  

“The UK’s tech startups need support, but lack faith in the government’s ability to deliver it,” said Gandhi. “We must all hope that the government can prove the sceptics wrong.”

Read more about businesses and the coronavirus

  • Technology startups in London are fighting for their existence, with business plans for the next three months geared towards survival.
  • Chancellor announces measures in the Spring Budget to help small to medium-sized enterprises that could be hit hard by further spread of coronavirus Covid-19.

The survey was conducted at the end of March 2020 before the government announced the Future Fund on 20 April to support startups and loss-making companies.

The £250m fund starts in May and will provide loans, ranging from £125,000 to £5m, to UK-based companies, subject to at least equal match-funding from private investors.

However, Computer Weekly has revealed that of the UK’s roughly 30,000 startups, only 5,000 will be able to access the loans, because to be eligible, enterprises must be an unlisted UK registered company and have raised at least £250,000 in equity investment from private, third-party investors in the last five years.

This means some 83% of UK startups will not have access to the fund. And although the government is separately pledging £750m of targeted support for the most research and development (R&D)-intensive small and medium-sized firms, which will be available through Innovate UK’s grants and loan scheme, this will only reach a small number of firms.

HM Treasury said in an announcement: “Innovate UK, the national innovation agency, will accelerate up to £200m of grant and loan payments for its 2,500 existing Innovate UK customers on an opt-in basis.

“An extra £550m will also be made available to increase support for existing customers, and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding. The first payments will be made by mid-May.”

Including both R&D support and matched funding from the private sector, the new package totals £1.25bn.

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