Seedrs founder and Chairman Jeff Lynn has distributed his thoughts on the ongoing impact of the COVID-19 pandemic and the UK government’s approach to aid the struggling economy – more specifically for early-stage firms.
Lynn dices the issue up between the Good, the Bad and the, well, Maybe…
Regarding the Good portion of the UK government’s “Coronavirus Job Retention Scheme” (CJRS), Lynn said the plan will enable impacted businesses to put staff on furlough at 80% of their normal pay (subject to a maximum of £2,500 per month). The government will be paying the full wage bill as well as the Employers’ NI.
“So the CJRS is looking like a great way to cut costs during the crisis while still treating employees well and staying on strong footing for when the crisis ends. Bravo Boris (or, more precisely, Raves for Rishi…).”
As for the Bad portion of the bailout package, Lynn says the “Coronavirus Business Interruption Loan Scheme” (CBILS) will not be made available to early-stage firms – many of which lose money as they scale. Apparently the banks have made it clear that only businesses that would have qualified pre-Corona will be able to tap into these loans that hold an 80% government guarantee -thus dramatically reducing lender risk.
Lynn notes that there may be some exceptions but at least for now, the CBILS ignores one of the most crucial segments of the economy – entrepreneurs and early-stage firms.
As for what remains to-be-determined, a special package for early-stage firms may be in the making.
Apparently there is an ongoing discussion for a “Runway Fund” that may provide £300 million in public funding for early-stage firms in the form of convertible notes. This is a plan that has received the endorsement of the Coalition for a Digital Economy – an entity that Lynn currently Chairs.
Lynn points to an article in the FT authored by Brent Hoberman who pointed to the fact that the UK leads Europe in tech investment and it would be a shame to put that at risk:
“… more than £10 billion was invested in UK tech last year and the sector employs almost 3 million people. Beauhurst estimates that more than 1,300 UK start-ups have raised seed rounds over the past two years and now need to raise more funding. To keep them alive, the UK should create a Runway Fund to give extra time to these early-stage businesses. It would provide convertible loan notes with discounts to start-ups of up to £500,000 to give them at least nine more months of operations. The loan would then convert into equity at the next round.”
Hoberman says this is not a handout but an investment that should generate returns once the economy is back to normal:
“We floated this idea last week and many UK tech founders are enthusiastic and more than 50 early-stage funds, accelerators and later stage funds are keen to support us. The start-ups funded should create economic value. Capital Enterprise estimates that start-ups that survive to reach the second stage of funding known as Series B end up raising 10 times as much money, supporting many more jobs. Launching this fund would be a shot in the arm for UK tech founders, long term employment and tax revenue … Once again the UK can lead European tech policy and remain the growth engine for European tech.”
The Enterprise Investment Scheme Association (EISA), the advocate for the EIS and SEIS programs that has been highly successful in supporting smaller companies and creating jobs in the UK, has called on the UK government to boost tax relief to 60% (IE invest in an SEIS or EIS qualified issuer and receive 60% of the investment back on your taxes). Currently, the amount stands at 30% for EIS and 50% for SEIS qualified firms.
Lynn adds that there are other suggestions being reviewed but he hopes that the UK government acts sooner rather than later.
Earlier this month, Seedrs revealed some in-house initiatives for issuers as the COVID-19 outbreak pummeled the economy. Lynn asked to reach out if you have any thoughts on what could be done to help support issuers and smaller firms as the economy struggles in its battle with the pandemic.