Treasury readies rescue package for startups

Linda J. Dodson

The Treasury is weighing up a rescue package for startups that could involved co-investing with private backers and beefing up support from the British Business Bank.

The Government is understood to be readying a deal to help startups facing a funding crunch after being warned a “generation” of innovative businesses will be lost to the coronavirus without intervention.

The measures under discussion would seek to unlock private capital by matching funding, likely on a deal-by-deal basis. Usual sources of funding, such as venture capital, have dried up in the face of Covid-19 and many startups cannot tap the Chancellor’s emergency loan scheme.

Businesses could receive investment split equally between the Treasury and private backers. However, the Government could take on more of the funding burden at the smaller end of the market that has more difficulty accessing money from private investors.

Setting up a fund with both public and private money has also been discussed but would likely take more time. The British Business Bank is already an investor in many startups and sources close to the discussions expect the Chancellor to use the government-owned development lender to deploy public money.

Sources said measures were being worked on by Treasury officials over the bank holiday weekend and would need to be unveiled soon to save many early stage businesses.

The Save Our Startups campaign has warned Rishi Sunak that Britain could “lose a generation of startups and high growth businesses” to the coronavirus if no Government help is forthcoming. More than 5,000 signatories are backing its drive, including Deliveroo chief marketing officer Ines Ures and and Lastminute.com co-founder Baroness Lane-Fox.

“Today’s entrepreneurs are being forgotten during the Covid-19 crisis, which threatens their existence,” it said in an open letter to the Government earlier this month.

The campaign warned that many of the UK’s near 30,000 startups and high-growth businesses do not qualify for the Coronavirus Business Interruption Loan Scheme.

“These businesses are making a huge contribution to the economy but are often yet to make a profit because they are investing in their people, technology and bringing innovative products and services to market.”

Philip Salter, founder of the Entrepreneurs Network, said many startups are being turned down by banks for state-backed loans “because their business model of investing for growth means they don’t qualify”. 

He argued an equity-based package is needed to provide vital funding to early stage businesses.

“Investment deals are falling apart, extreme write-downs are taking place, and early-stage funding is drying up,” Mr Salter warned.

A Government spokesperson said: “We recognise many start up and early stage companies are facing challenges and are working with industry to assess these and consider further ways to offer support.”

“We’re taking unprecedented action at speed to support businesses, jobs and our economy,” they added.

“This includes £330bn in business loans and guarantees, paying 80pc of furloughed workers’ wages, tax deferrals, and introducing cash grants of up to £25,000 for small companies and covering the cost of statutory sick pay.”

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