Deliveroo, Graphcore and other big UK startups say they’re being cut out of COVID-19 lending relief
The U.K. government, like a number of other countries around the world such as the U.S., has stepped up its pace in providing relief in the form of loans for businesses being impacted by the coronavirus health crisis and the related shutdown that we've seen across the economy and life as we knew it. But startups in the U.K. are increasingly getting worried that they are being left behind.
An open letter to the Chancellor published today and signed by the U.K.'s biggest "scale-ups" - later-stage, highly valued, but still venture-backed (and often loss-making) startups such as Deliveroo, Benevolent AI, Citymapper, Graphcore and Bulb - urged the U.K. government to make room to provide lending options to companies like theirs.
They are specifically calling for a special task force to be created to consider how to build lending schemes for companies like theirs, as well as to alter the rules on the three big schemes that have already been announced to accommodate them, and give them the same access as other businesses.
The letter, which we're publishing in full below, is not the first cry for help. Earlier this week, another initiative called SOS (Save Our Startups), also published an open letter asking for access to the same lending schemes that other businesses are getting. SOS includes dozens of smaller startups and a number of the VCs that back them.
The crux of the matter has been that startups backed with tens or hundreds of millions of dollars in funding from VCs to scale their growth have not been built or planned with profitability as a short-term or even medium-term goal. Many of them have so far eschewed public listings (and subsequent credit ratings, for starters) for longer in part because of the large amount of money available to them these days through the private markets - venture capital, family offices, private equity and so on - to grow.
All of that is predicated, however, on the continued health of the wider economy and consumer demand that helped nurture their businesses in the first place. The current public health crisis has thrown that model into disarray, and has meant that the growth these companies had expected will simply not be coming in the form that they expected, if it comes at all. VCs might pick up some of the slack - the biggest of these are still raising, and have in their hands already, huge funds and will step up to support their most promising portfolio companies. But we don't know how long the effects of the coronavirus will linger, and most likely these startups, like other businesses, will need more.
Countries like France and Germany have accounted for this business disparity. They have created special provisions for lending to startups in response to the COVID-19 economic and social upheaval, and respectively there have been programs backed with $4.3 billion and $2.2 billion in government money put into place. But the three main U.K. initiatives that have been announced - Coronavirus Large Business Interruption Loan Scheme, the Covid Corporate Financing Facility and the Coronavirus Business Interruption Loan Scheme - have basic requirements that effectively rule out scaled-up startups from applying.
These include provisions around having established credit ratings for public companies (as in the case of the bigger loan schemes), or financing that is too small (as in the case of the smaller loan schemes), or the scaled-up companies have annual revenues that are too high (both the CBILS and CLBILS schemes have respective turnover thresholds of 45 million and 500 million).
In the meantime, the U.K. government has made small moves to encourage startups to continue building in a more focused way - for example, last week it announced 50 million in grants to businesses that are building better "resiliency" products to help companies better weather crises like this in the future. But for companies that regularly see revenues (and corresponding expenses and losses) in the tens and hundreds of millions, grants in the tens of thousands of dollars are like putting drops of water into the ocean.
But with startups accounting for some 30,000 businesses and some 300,000 workers in the U.K., and significant sums toward the country's GDP and operations, it seems like a big problem to ignore for too long.
[letter follows below]
Dear Chancellor,
We greatly appreciate the significant steps that you have taken to help British businesses through the COVID-19 crisis. But as founders and CEOs of leading UK companies we are concerned that unless urgent changes are made to the current schemes then the high-growth UK tech sector will be put at risk.
As innovative companies we build technology and systems that transform sectors. For customers, we drive costs down, standards up and for society we create whole new categories of products and services. We are vital to productivity, clean growth and UK exports.
But unfortunately, the COVID-19 lending schemes you have put in place benefit established firms and do not help companies of the future such as ours.
The businesses we run serve millions of customers across the UK, and overseas. We are stepping up to help the country at this difficult time by helping tens of thousands of small businesses to continue operating, helping vulnerable customers get essential services and using innovative technology to give the NHS better tools to tackle the pandemic.
The high-growth tech sector has introduced innovative new products that have improved the lives of millions of customers in the UK and many more around the world. We have created huge numbers of high skilled jobs and we export across the globe.
Our sector will be crucial to helping the UK economy bounce back quickly after the pandemic. The UK tech community is a world class engine for innovation and growth, however, it has not yet received Government support, unlike our competitors in France and Germany.
Our companies have all invested in technology and growth rather than short term profitability, which means that we are currently unable to access the schemes which have been designed with longer-established businesses in mind. The current schemes that you have put in place - 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 businesses.
We are therefore writing to ask you to urgently set up a taskforce meeting of leading tech businesses to work with you and your officials to find a way for high-growth tech companies to be able to access the lending schemes you have already established or new schemes if necessary.
As you said in your Budget speech earlier this year, to help Britain's businesses lead the next generation of high productivity industries, we need to invest in the technologies of the future. The high-growth tech sector has a vital role to play in the future success of the UK economy, and we urge you to work with us to ensure that it is helped through the crisis and that the UK is still the best place in the world to build a tech company.
Confirmed Signatories
Ali Parsa, Babylon
Joanna Shields, BenevolentAI
Peter Smith, Blockchain
Hayden Wood, Bulb
Azmat Yusuf, Citymapper
Poppy Gustafsson, Darktrace
Will Shu, Deliveroo
Marc Warner, Faculty
Stan Boland, Five AI
Hiroki Takeuchi, GoCardless
Nigel Toon, Graphcore
Herman Narula, Improbable
