The UK government, like a number of other countries around the world, such as the United States, has increased its pace to provide credit relief to companies affected by the coronavirus health crisis and related closures. I saw the economy and life as we knew it. But startups in the UK are increasingly worried that they will be left behind.
An open letter to the Chancellor, published today and signed by the UK's biggest "scale-ups" – later, highly valued but still daringly supported (and often loss-making) startups like Deliveroo, Benevolent AI, Citymapper, Graphcore and Bulb urged the UK government to make room to offer credit options to companies like them.
They specifically call for a special task force to be set up to consider how lending systems for companies like theirs can be built, and to change the rules for the three major systems that have already been announced to accommodate them, and to give them the same access as other companies.
The letter, which we publish in full below, is not the first call for help. Earlier this week, another initiative called SOS (Save Our Startups) published an open letter asking for access to the same lending systems that other companies get. SOS includes dozens of smaller startups and a number of VCs that support them.
The whole point was that startups backed by tens or hundreds of millions of dollars in funding from VCs to scale their growth were not built or were planned with profitability as a short-term or even medium-term goal. Many of them have so far avoided public listings (and subsequent credit ratings to get them started) for longer, partly due to the large amount of money that is available to them today through private markets ̵
However, all of this depends on the continued health of the overall economy and consumer demand, which have primarily contributed to the promotion of their businesses. The current public health crisis has disrupted this model and has resulted in the growth expected by these companies simply not, if at all, occurring as expected. VCs could offset some of the doldrums – the largest of them are still collecting and already have huge funds in hand and will support their most promising portfolio companies. However, we don't know how long the effects of the corona virus will last, and most likely these startups, like other companies, will need more.
Countries like France and Germany have explained these business differences. In response to the economic and social upheavals in COVID-19, they created special regulations for lending to start-ups, and government programs of $ 4.3 billion and $ 2.2 billion were set up . However, the top three UK initiatives announced – Coronavirus Large Business Interruption Loan Scheme, the Covid Corporate Financing Facility and Coronavirus Business Interruption Loan Scheme – have fundamental requirements that effectively preclude application for scaled startups.
These include provisions regarding the setting of ratings for public companies (as in the case of the larger loan programs) or insufficient funding (as in the case of the smaller loan programs) or the annual income of the enlarged companies are too high (both that CBILS and CLBILS programs have corresponding turnover thresholds of £ 45m and £ 500m respectively.
In the meantime, the UK government has taken small steps to encourage startups to continue building more specifically – for example, last week GBP 50m grants were announced to companies that better "resilience" – Develop products to help companies cope better with such weather crises in the future. For companies that regularly see double-digit and hundreds of millions of dollars in revenue (and corresponding expenses and losses), tens of thousands of dollars in grants are like bringing drops of water into the ocean.
But startups make up around 30,000 companies and around 300,000 workers in the UK, and significant sums of money for the country's GDP and business appear to be a big problem to ignore for too long.
[letter follows below]
We greatly appreciate the significant steps you have taken to help UK companies face the COVID 19 crisis. As founders and CEOs of leading UK companies, however, we are concerned that the fast-growing UK technology sector will be jeopardized unless changes are made to current systems.
As innovative companies, we build technologies and systems that change sectors. We cut costs, standards for customers and we create completely new categories of products and services for society. We are critical to productivity, clean growth and UK exports.
Unfortunately, the COVID-19 lending systems that you introduced benefit established companies and do not help companies of the future like ours.
The companies we run serve millions of customers across the UK and overseas. We are increasingly committed to helping the country in this difficult time by helping tens of thousands of small businesses to continue operating, helping vulnerable customers get important services, and using innovative technologies to help the NHS better tools to fight the Pandemic to offer.
The high-growth tech sector has launched innovative new products that have improved the lives of millions of customers in the UK and many others around the world. We have created a large number of highly qualified jobs and export all over the world.
Our sector will be critical to ensuring that the UK economy recovers quickly after the pandemic. The British tech community is a world-class engine for innovation and growth. Unlike our competitors in France and Germany, however, it has not yet received any government support.
Our companies have all invested in technology and growth rather than short-term profitability. This means that we are currently unable to access systems designed for longer established companies. The programs you have currently set up – the Covid Corporate Financing Facility (CCFF), the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Coronavirus Business Interruption Loan Scheme (CBILS) – are not accessible to our companies.
We therefore urge you to set up a Task Force meeting of leading technology companies to work with you and your employees to find a way for high-growth technology companies to access existing or new lending systems if necessary.
As you said in your budget speech earlier this year, we need to invest in the technologies of the future to help UK companies lead the next generation of high productivity industries. The high-growth technology sector plays an important role in the future success of the UK economy. We urge you to work with us to ensure that the crisis is overcome and that Britain is still the best place in the world to start a tech company.
Ali Parsa, Babylon
Joanna Shields, BenevolentAI
Peter Smith, Blockchain
Hayden Wood, Bulb
Azmat Yusuf, Citymapper [19659002Darktrace] Gustav Pace Will Shu, Deliveroo
Marc Warner, Faculty
Stan Boland, Five AI
Hiroki Takeuchi, GoCardless
Nigel Toon, Graphcore
Herman Narula, Unlikely