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Coronavirus: Startups raise £663m during lockdown

Investment is significantly higher than at the same time last year, but it is concentrated in very few hands as the total number of deals declines

UK startups have attracted more than half a billion pounds’ worth of investment in the month since the coronavirus lockdown began, according to new industry research.

But although the £663m raised means the value of investment is 34% higher than in the same period last year, the total number of deals has dropped by 39% to 114.

Most of the investment has been directed to already-established players, with just over £50m going to startups that have never raised funds before.

This has largely been led by the technology sector, with fintech, artificial intelligence, digital security and blockchain startups receiving the highest levels of investment.

The research was conducted by co-working and innovation space company Plexal and Beauhurst, a UK database for fast-growth companies, which analysed investment activity around the UK’s roughly 30,000 startups between 23 March and 27 April.

Although total investment was up, the research makes it clear that the decline in the total number of deals is a sign of waning investor confidence.

“While the data shows an immediate downturn following lockdown, our hope is that the startup and technology sectors will remain resilient during this economic disruption,” said Henry Whorwood, head of research and consultancy at Beauhurst, referring to the fact that the first week of lockdown saw a five-year low in investment, before bouncing back.

“The concern is that a reduction in the number of deals reflects a fall in investor confidence that could cripple the growth of the country’s most successful startups and fast-growth businesses,” Whorwood added.

The research found that nearly 1,000 small businesses are already in administration or liquidation, numbering 263 and 707, respectively.

Therefore, despite recent announcements from the government about a Future Fund for small businesses and loans being distributed by Innovate UK (IUK) and the British Business Bank (BBB), the figures show investment going to a very small proportion of startups, with the vast majority still struggling to raise funds.

On 22 April, Computer Weekly revealed that over 80% of UK startups were ineligible for Future Fund loans, because only 5,000 of the 30,000-odd startups can meet the criteria of having raised at least £250,000 in equity investment from private, third-party investors in the past five years.

Although the government has separately pledged to distribute £750m worth of targeted support loans through IUK and BBB to the most research and development (R&D)-intensive small and medium-size firms, this too will only reach a small number.

“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,” said HM Treasury.

“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.”

Read more about startups and the coronavirus

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According to Plexal’s managing director, Andrew Roughan, it is clear that although the Future Fund is a good start, more is required to protect startup businesses.

“This research is designed to cut through the doom and gloom and speculation to see which parts of the startup ecosystem are thriving, and which need urgent support,” he said. “While tech startups have shown remarkable resilience in their ability to continue attracting investment, the success of the few must not overshadow the struggles of the wider majority of British startups.

“If we don’t act now to stimulate the market and ensure funding is distributed widely and quickly, we risk a lost generation of startups and entrepreneurs. We will be closely monitoring deal numbers, liquidations and early-stage rounds in the coming weeks and months to provide an accurate lens through which to judge whether the support mechanisms are working as desired.”

The uncertainty facing many startups is also reflected in plummeting confidence levels, with separate research from digital agency Studio Graphene finding that 54% of C-suite-level startup employees are “very worried” about the impact of Covid-19 on their business, with 37% being “slightly worried”. A further 47% expressed concern about being able to secure private investment.

Plexal and Beauhurst’s research will be updated weekly, and the firms plan to work with government and investors to help startups receive support.

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