With the business failure rate for early-stage technology startups reaching new highs during 2020 due to the pandemic, the investor community is seeking to shake up the UK’s funding infrastructure to make it easier for new tech businesses to access the capital they need to accelerate their growth.
Early-stage firms have struggled during the Covid-19 pandemic, with 1,067 startups filing for administration, liquidation, or dissolution between the start of lockdown on 23 March 2020 and September.
Of these, 273 fast-growth companies made filings in September alone – a 181% month-on-month increase from August – marking the highest number of startup collapses in one month for a decade.
This followed months of startups struggling to secure government support (83% were ineligible for the Future Fund loan scheme introduced in April) as well as venture capital (VC) investment, which was highly concentrated in a few hands with just 5% of the £1bn raised between the start of lockdown and end of May 2020 going to firms that had raised investment for the first time – a trend that has persisted.
The Venture Capital Trust Association (VCTA) is an organization to represent the UK’s venture capital trusts (VCTs) – listed companies set up in the late 1990s to pool money from investors and provide equity capital to high-growth small businesses. It operates in diverse sectors, ranging from digital technology and software to medicine development and specialist manufacturing. VCTs currently manage about £5bn – 80% of which is spoken for by the VCTA – and operate under specific legislation that sets out how to allocate funding.
Because the VCTA invests primarily in businesses that are in the process of scaling up, it has a vested interest in the overall funding landscape and ensuring that the UK has a good supply of startups. The challenges startups faced in 2020 are a top-of-mind concern for the VCTA, which has been actively lobbying the government to address shortcomings in the Future Fund loan scheme, for example.