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COVID-hit UK startups cry out for help, as UK gov trails Europe in its response

The UK government is reportedly looking at a range of options to support the startup industry, possibly involving a co-investment model involving state-owned funds (via the British Business Bank) and private VC funds. Investors have been warning that typically loss-making, early-stage startups are at risk of collapse amid the coronavirus crisis. But the moves come far later than generous packages put together by Continental European governments to support their startup sectors.

Ministers understood to be keen to support the strong UK startup and innovation sector and options allegedly being considered include convertible loans, which could either be later repaid or turned into equity stakes owned by the state. This would require matched co-investment with VCs, ensuring only existing venture-backed startups would be eligible.

The FT reports that ministers want to do this on a case-by-case basis and only after companies have first sought fresh capital from private investors.

Also being considered is additional grant funding via InnovateUK, a government body providing support to innovative businesses, and an expansion of R&D tax credits.

However, the scale of any government intervention is expected to be far more modest than the government’s previously announced support for small, medium and large companies and their workers, given investors are normally deep-pocketed and tech startups typically employ far fewer people than traditional industries. By contrast, the French and German governments committed €4bn and €2bn in relief for their respective tech startup sectors.

The proposals under consideration include ones put forward by a number of significant players in the UK tech industry, who jointly launched a campaign over the weekend to pressure the government into creating a support package to aid startups struggling to deal with the COVID-19 crisis.

The move comes in the wake of moves by other European countries, such as France and Germany, which have announced significant initiatives.

The Save Our Startups (SOS) campaign published an open letter to British prime minister Boris Johnson warning the country could “lose a generation of startups and high growth businesses to COVID-19.”

It claims more than 30,000 startups employing some 330,000 people do not qualify for existing support measures and are therefore in jeopardy if new policies are not developed to help them.

The campaign was launched by crowdfunding platform Crowdcube and industry body Coadec, and is supported by leading tech figures including Brent Hoberman, the co-founder of Lastminute.com; Alex Chesterman, the cofounder of Zoopla, LoveFilm and Cazoo; and Arnaud Massenet, cofounder of Net-a-Porter.

It is also joined by organizations including The Entrepreneurs Network, Draper Esprit, Virgin Startups, Vala Capital, Innovate Finance, UK Business Angels Association (UKBAA), EISA, Tech London Advocates, Capital Enterprise and Seedrs .

Jeff Lynn, executive chairman and co-founder of Seedrs, who was a signatory to the letter, commented: “The growth of the startup ecosystem has been one of the great successes of the UK economy over the past decade. All that work is now threatened by COVID-19, and that’s why it is essential that the government step in to help at this precarious time–just as the French and German governments are doing. The Save Our Startups campaign sets out three sensible and crucial requests that will make all the difference in ensuring that our startups can continue to be European and world leaders in the decade ahead. I am very pleased that Seedrs and Coadec, both of which I co-founded and chair, are Founding Partners of the campaign, and I hope everyone in the ecosystem will sign onto it.”

The open letter said: “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. They are highly unlikely to qualify for the Coronavirus Business Interruption Loan Scheme (CBILS), which was introduced to provide financial support for SMEs during this pandemic.”

The letter points out that the French and German Governments have already worked to craft support for startups.

Save Our Startups has a three-point proposal for the government, calling on it to:

• Provide an equity-based liquidity package suitable to save startups at risk. While CBILS covers a proportion of UK businesses, the majority of startups and high-growth companies will be excluded and as a result, unsupported.

• Fast track payments to startups from public funding schemes – in particular, R&D tax credits and Innovate UK funding grants. Private sector liquidity has taken a major hit during the crisis with angels and micro-funds unable to provide startups and high growth businesses with bridging money.

• Change EIS, SEIS and VCTs to stimulate private equity investment into startup and high growth businesses, since many startups are losing access to debt or equity support.

However, some investors are cool on the idea, pointing out that the government could end up owning stakes in companies that would not otherwise have raised private-sector money, and that there should be a natural falling-off of weaker companies at a time of public crisis.

Investor Robin Klein of Localglobe commented on Twitter that: “The UK Govt has done an incredible job supporting the startup ecosystem” but he called the SOS campaign a “knee jerk” reaction and although he was “100% in favour of rapid BBB and other govt support” this would be through established tools.”

Luke Lang, cofounder of Crowdcube, which initiated the campaign with Coadec, commented: “Other European countries have raced to rescue its startup and tech communities, with French and German Governments committing €6bn in funding. The UK is sluggish by comparison, and further delays are unforgivable and threaten thousands of promising startup and high-growth businesses with huge potential.”

The full letter by Save Our Startups can be read here. And the list of signatories is below:

Darren Westlake — cofounder and chief executive, Crowdcube
Luke Lang — cofounder, Crowdcube
Brent Hoberman — cofounder and chairman, Founders Factory; previously cofounder, Lastminute.com
Alex Chesterman — founder and chief executive, Cazoo; previously cofounder, LoveFilm and Zoopla
Arnaud Massenet — cofounder, Net-a-Porter
Mike Muller — cofounder, ARM
Anthony Fletcher — chief executive, Graze
Tania Boler — founder, Elvie
Doug Monro — cofounder and chief executive, Adzuna
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Jeff Lynn — cofounder and executive chairman, Seedrs
Saurav Chopra — cofounder and chief executive, Perkbox
Daniel Korski — founder and chief executive, PUBLIC
David Dunn — chair, UK Tech Cluster Group
Philip Salter — founder, The Entrepreneurs Network
Andrew Tibbitts — chief operating officer, TechHub
Charlotte Crosswell — chief executive, Innovate Finance
Jenny Tooth OBE — chief executive, UKBAA
Jonathan Sibilia — partner, Draper Esprit
Dom Hallas — executive director, The Coalition for a Digital Economy (Coadec)
John Spindler — cofounder and chief executive, Capital Enterprise
Mark Brownridge — director general, EIS Association
Natasha Guerra — cofounder, Runway East
Andy Fishburn — managing director, Virgin Startup
Russ Shaw — founder, Tech London Advocates
Alex Davies — founder and chief executive, Wealth Club
Bruce Davies — director, UK Crowdfunding Association
Andrew Roughan — managing director, Plexal
Jasper Smith — founder, Vala Capital
Gaby Hersham — founder, Huckletree
Carlos Silva — cofounder, Seedrs
Robert Walsh — managing partner, Q Ventures

They made vacuum cleaners before the coronavirus outbreak. Now, they’re making ventilators.

They made vacuum cleaners before the coronavirus outbreak. Now, they’re making ventilators.

UK manufacturer Gtech revealed a prototype design for a medical ventilator, a vital piece of equipment in the battle against the novel coronavirus. Gtech, known for their vacuum cleaners, was asked to help mass produce ventilators by the UK government.  Read more…

More about Uk Government, Vacuum Cleaner, Coronavirus, Ventilators, and Uk Gov

Rocket startup Skyrora shifts production to hand sanitizer and face masks for coronavirus response

One of the newer companies attempting to join the rarified group of private space launch startups actually flying payloads to orbit has redirected its entire UK-based manufacturing capacity towards COVID-19 response. Skyrora, which is based in Edinburgh, Scotland, is answering the call of the UK government and the NHS to manufacturers to do what they can to provide much-needed healthcare equipment for frontline responders amid the coronavirus crisis.

Skyrorary says that the entirety of its UK operations, including all human resources and its working capital are now dedicated to COVID-19 response. The startup, which was founded in 2017, had been working towards test flights of its first spacecraft, making progress including an early successful engine test using its experimental, more eco-friendly rocket fuel that was completed in February.

For now, though, Skyrora will be focusing full on building hand sanitizer, its first effort to support the COVID-19 response. The company has already produce their initial batch using WHO guidelines and requirements, and now aims to scale up its production efforts to the point where it can manufacture the sanitizer at a rate of over 10,000 250 ml bottles per week.

There’s actually a pretty close link between rocketry and hand sanitizer: Ethanol, the form of alcohol that provides the fundamental disinfecting ingredient for hand sanitizer, has been used in  early rocket fuel. Skyrora’s ‘Ecosene’ fuel is a type of kerosene, however, which is a much more common modern aviation and rocket fuel.

In addition to sanitizer, Skyrora is now in talks with the Scottish Government to see where 3D-printed protective face masks might have a beneficial impact on ensuring health worker safety. It’s testing initial prototypes now, and will look to mass produce the protective equipment after those tests verify its output.

Plenty of companies are pitching in where they can, including by shifting their production lines and manufacturing capacity towards areas of greatest need. It’s definitely an ‘all-hands-on-deck’ moment, but there’s definitely a question of what happens to businesses that shift their focus this dramatically once the emergency passes, especially for young startups in emerging industries.