Each week during the Covid-19 crisis, I am going to try to share some thoughts on, and resources for, the startup and scaleup ecosystem. I hope you find these notes helpful in navigating these uncertain times.
Government Support:
The Good, The Bad and The Maybe
Some businesses will thrive under current conditions, even if this isn’t necessarily where they wanted their success to come from. Oddbox, the wonky veg box company of which I am a long-time customer, included a note in this week’s box saying that demand is so high they can’t accept any new orders for the moment. And The Cheeky Panda, makers of high-quality, sustainable toilet roll – well, you can just imagine how popular they are right now.
But for all of the successes, there will also be many businesses that struggle, and over the past few weeks Her Majesty’s Government has been on overdrive in trying to find ways to support them. A number of different schemes have been put in place—you can see the full list here—but I want to talk about two of the most prominent, as well as a third potential one that could be particularly important to our community.
The Good: Coronavirus Job Retention Scheme (CJRS).
Many companies will see a slowdown during this period, meaning they don’t need—and probably aren’t generating enough revenue to pay—all of their staff. At the same time, no one wants to make redundancies right now if avoidable. There’s obviously the human impact of letting people go at a time when new jobs will be tough to come by, but there is also the practical reality that, once we are through this crisis, many industries may see a quick rebound, and if your staff are all gone, it will be very tough to take advantage of the upward wave.
Enter the CJRS, which allows businesses to put staff on furlough at 80% of their normal pay (subject to a maximum of £2,500 per month), with government picking up the full wage bill and Employers’ NI. The initial and much-awaited guidance on how this will work in practice was published on Thursday, and to most people’s delight, it shows that the scheme will be wide-ranging and relatively easy to use (you can read the full guidance here). There are a few limitations, but we would expect the vast majority of businesses we work with to be eligible to take advantage of it.
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…).
The Bad: Coronavirus Business Interruption Loan Scheme (CBILS).
If CJRS helps reduce costs, CBILS is the much-trumpeted scheme to get cash into small- and medium-sized businesses in order to help with the costs that can’t be cut. The scheme provides an 80% government guarantee on bank loans of up to £5 million.
When first announced, it seemed like CBILS might be as broadly applicable as CJRS, as businesses in almost every sector are eligible for it so long as they have less than £45 million in turnover (there is a separate scheme for larger businesses). In the normal world, startups and scaleups generally don’t qualify for bank lending, because they tend to be loss-making (usually intentionally, in the pursuit of rapid growth) and often don’t have the types of assets that can be used as collateral. But with an 80% guarantee, the risk to the banks shifts dramatically (i.e., it’s reduced by 80%…), so the hope was that that would make a whole lot of businesses eligible that wouldn’t otherwise have qualified.
Sadly, it wasn’t to be. The banks quickly made clear that loans would only be for those businesses who would have qualified for lending pre-crisis, which basically renders the scheme useless to the vast majority of startups and scaleups. There may be some exceptions, and we will watch closely as initial lending decisions are made (and if you hear about decisions, either approvals or rejections, please let me know!), but for now CBILS does not look like a realistic route to capital for most of our community.
The Maybe: a specialised funding package for startups and scaleups, form TBD.
Because CBILS is a non-starter for most startups and scaleups, there are several efforts afoot to harness government support for a funding structure more suitable for these types of businesses.
Brent Hoberman wrote in the FT this weekend (paywall, sorry) about the proposed Runway Fund, which would be a £300m public-private fund that would invest up to £500,000 in 600 early-stage businesses through convertible notes (disclosure: one of the institutions leading this initiative is The Coalition for a Digital Economy (Coadec), which I chair). France has already announced something similar, as part of a €4 billion package of aid to its fast-growing startup and scaleup ecosystem.
Meanwhile, the Enterprise Investment Scheme Association (EISA) has put forward a call for the income tax relief percentages on EIS and SEIS investments to be raised to 60% (from 30% and 50%, respectively) during this period in order to encourage more private investment. And there are a number of other good ideas floating out there, including around funding for later-stage businesses.
The big question is how government will respond, and we are hopeful that we will see moves toward adopting one or more of these schemes over the course of this week.
Resources and Musings
A few interesting resources I’ve come across over the past week to help businesses think about how to manage themselves during this period:
- From Bain & Company, the global management consultancy, an adaptation of their “Elements of Value” model to focus on what customers need most during a time like this: https://www.bain.com/insights/three-elements-of-value-for-consumers-take-precedence-snap-chart/
- From Pete Flint, founder of Trulia (and one of the people I met and took inspiration from early in my own journey to becoming an entrepreneur and co-founding Seedrs), a detailed and hugely worthwhile post on how to make it through a downturn: https://www.nfx.com/post/28-moves-survive-thrive-downturn/
- And from Jimmy McLoughlin, former business adviser to Theresa May and a long-time friend to Seedrs and to the startup and scaleup community, a regular newsletter on “navigating the business of coronavirus”: https://www.getrevue.co/profile/jimmym
And then a few tweets that seemed salient, amusing or both:
- First from Bill Gurley, partner of Benchmark Capital and one of the deans of the Silicon Valley venture capital community, who tweets: “I am living through my third ‘reset’ in Silicon Valley. Reputations are built in hard times, not the easy times. If you shake a hand, sign your name – stand strong, or your word is no good. Otherwise you are a transient that only wanted the easy take. And you should move on.” It’s already apparent that some investors are heeding this advice more than others, and I think that will be well remembered by founders when they get to the other side of this.
- Paul Graham, founder of Y Combinator (YC) and essayist extraordinaire, tweets a straightforward and pithy piece of advice: “If your startup’s market has shrunk and you’re wondering if you should (a) wait for it to come back or (b) adjust yourself to its current size, the answer is probably (b).” For more of Paul’s excellent thinking (from pre-crisis days), you can see his collection of essays here.
- Mattias Ljungman, one of the greats of the UK venture capital community—for many years at Atomico, which he co-founded, and now at his own Moonfire Ventures—tweets a thought about the post-crisis world: “Coronavirus has accelerated a wide societal change which is also further digitizing our economy. We are all re-thinking how we live our lives. To many this is either traumatizing & exhilarating!”
- And finally, for those of us who have been around for bit, a funny one from James Clark, the tech community’s man at the London Stock Exchange. He tweets: “It’s probably worth pointing out that Webvan would be crushing it right now.” (For the young’uns who don’t know what Webvan was, just Google “dot-com crash” and “poster child”.)
What Seedrs is Doing
Last week I shared a blog post in which I talked about the initial set of actions that Seedrs is taking to support our entrepreneurs and investors during this time. Of these, I’m pleased to announce our first online pitching event and our first online office hours will take place this week:
- Online Bitesize Pitches: Thursday, 2 April 2020, 13.00 London time. Featuring Crua Outdoors, Miso Tasty, Lifetise and Hyper Poland. Open to all authorised investors. Details on registration coming shortly.
- Online Office Hours: Friday, 3 April 2020, 12.00 London time. Raising Capital for Your Business During Covid-19. Open to all who are considering ways to raise finance during this period. Register here.
Meanwhile, initiatives like our fast-tracked fundraising campaign service, convertible equity campaigns (ASAs) and extended campaign length are already up and running—we’ll be sharing more information shortly, but if you are interested in any of them, please get in touch with your contact at Seedrs or [email protected]. And we’ll have updates on the remaining efforts in coming days.
***
That’s all from me for now. Please do let me know any feedback or contributions, and I hope you all stay well and safe in the week ahead.
