The COVID-19 pandemic has challenged all UK businesses. But smaller firms and early-stage companies may end up bearing the brunt of the impact as these companies can be less well prepared to endure an ongoing economic shutdown. Today, the Enterprise Investment Scheme Association (EISA) is out with a survey that foreshadows a dire situation. According to EISA, 9 out of 10 growth businesses may disappear within 12 months if something is not done.
Small firms and entrepreneurs are the life-blood of any economy. Innovation-driven economies even more so. The UK has established itself as the top European jurisdiction when it comes to entrepreneurship yet now this sector of the economy is experiencing a devastating blow due to the Coronavirus crisis.
The EISA is calling on the UK government to act now. Meanwhile, some reports are describing the Chancellor’s attempts to backstop the economy as falling far short.
According to a survey of 250 growth businesses currently seeking investment, more than 9 out of 10 of them will close down within the next 12 months if their current investment plans, disrupted by the coronavirus crisis, fail to materialize, according to a release.
The survey targeted firms currently in discussion with investors with 4 out of 5 stating the pandemic has impacted their plans “a lot or a great deal.” Over 70% expect to receive less than 40% of the investment to support their business plans. This is in spite of many having term sheets signed by prospective investors. Some funding is simply walking away due to market uncertainty and heightened risk.
The EISA said it is lobbying the Chancellor of the Exchequer Rishi Sunak to increase the tax relief available to private investors for investments in qualifying Seed and Enterprise Investment Scheme businesses to 60%, (from the current 50% for SEIS and 30% for EIS) levels, and to extend the scheme, for the period of the crisis with a view to attracting a further £200m of private investments into the businesses that could well represent the future of the UK’s unicorns.
Mark Brownridge, Director General of the EISA, said the survey shows the pandemic has compelled investors to pull back which in turn has imperiled fast-growth businesses:
“Of the 250 businesses in the survey over half represent the health, fintech, other tech and software solutions sectors, and these the very businesses that the UK will need as we exit the current crisis. The evidence we have in the survey showing that nearly two thirds believe that relaxing the EIS rules would lead to an increase in equity funding, emphasises that the Government needs to act now, and we strongly encourage them to consider the request we have put to them to provide short term additional reliefs to investors without delay.”
Crowdfund Insider received the following statement from Jasper Smith, founder at entrepreneur-led Vala Capital, which has been working with EISA over the past few weeks and is lobbying the government as well for even higher relief.
Smith shared:
“Startups are hanging on by their fingernails. Millions of jobs, the core of innovation in the UK and the foundation for our economic recovery, are at significant risk. It is a potential disaster for everyone. Unless we act, there will be little to stimulate recovery. We have called on [the] government to increase tax relief for small company investors from 30% to 80%, to unleash public support for our most innovative companies. It could deliver a lifeline the companies that drive innovation and future growth of the UK’s economy need.”
Startups are in free fall. We need your support now! Government should increase tax relief for small company investors and hand them a lifeline during the coronavirus crisis. Sign our petition https://t.co/8ez8iLH1ZR pic.twitter.com/rMadMT9s4T
— Vala Capital (@vala_capital) March 23, 2020
Over the weekend, CI reported on a coalition of entities that have joined together to launch a new entity called “Save Our Startups.” The group of advocates have created a web site that has since garnered over 3500 signatures calling on the UK government to step up to the plate and save this vital sector of the economy.
Now the question is what will the UK government do as calls for additional support increase while the Coronavirus crisis spreads.