Is the UK’s Startup Ecosystem Under Threat

By Ritam Gandhi, CEO and Founder, Studio Graphene

COVID-19 is the challenge of a generation, and one that will test many businesses in their bid for survival.

Global supply chains have been significantly disrupted, bricks and mortar premises are closed, and business leaders are having to carefully manage the shift to operations being carried out from their employees’ respective homes. But while there are still many questions about how the pandemic will play out, and what repercussions it will have on the private sector, we must remember the innate ability of small businesses to pivot and adapt.

The 2008 financial crash and the more recent EU referendum are two instances in which businesses were forced to quickly find their feet and create new ways of working that could fit with the changing environment. Indeed, the former inspired a new wave of startups that were eager to find opportunities amidst the crisis.

That said, businesses cannot go it alone, and the coronavirus pandemic presents obstacles of a very different nature. The Government must ramp up its support to lead businesses through this uncertain time – or risk watching the nation’s startups flounder.

What the latest research tells us

Ritam Gandhi

For over a year, Studio Graphene has been running its quarterly Tech Tracker Survey to monitor how businesses have been responding to ever-changing political and economic conditions. The latest iteration of the survey, which was conducted at the end of March 2020, offers a good insight into how prepared UK tech companies are to minimise the disruption caused by the coronavirus.

One observation that stands out is how quickly and dramatically confidence levels have fallen since this time last year. One in three (38%) UK tech startups said they are either ‘not confident’ or ‘not confident at all’ that their business’ turnover will grow in the year ahead. In March 2019, only 4% of companies held this pragmatic view.

Meanwhile, many are holding back on their plans while they await the full fallout from the pandemic. Two in five (40%) businesses have no plans to raise investment in the next 12 months, and half (51%) do not intend to expand into new territories.

It is not difficult to see why such ambitions have been put on hold; the vast majority (91%) of tech startups are ‘very worried’ or ‘worried’ about the impact that COVID-19 will have on their business. Despite this, at the time of surveying, only 69% of businesses have actually put together contingency plans to weather the storm.

One of the most telling statistics from the research is this: over two-thirds (69%) of tech businesses lack confidence in the Government’s ability to help them through the COVID-19 pandemic. The lack of faith in policymaker’s abilities to support them through these testing times deserves immediate attention.

Will UK startups survive? 

Speed is of the essence when it comes to providing businesses with a pathway through the pandemic. In this regard, the Government must be given its due – the Chancellor was quick to step in to offer financial support to those who had seen their cash flow significantly diminished.

Business rates relief and financial support for furloughed workers, which were announced in the early stages of the pandemic, will go a long way in offering much-needed breathing room – as will the loans accessible under the Coronavirus Business Interruption Loan Scheme (CBILS).

 On 20 April, the Treasury also made an additional intervention in the form of a £1 billion bailout package – one that is aimed specifically at startups and innovative SMEs. Part of this includes the Future Fund, which is scheduled to launch in May and will make cash available to venture-backed early-stage startups. The remaining funding will be open to small R&D businesses through the UK’s innovation agency Innovate UK.

It’s positive to see the Government take steps to protect cash-strapped companies that hold promising potential. To that end, the latest measures aim to rectify past failings, whereby loss-making companies – by and large, innovative startups who must first invest money before they can turn a profit – were exempt from schemes like the CBILS.

Now, the Government must focus on ensuring that small and ambitious businesses are able to actually get their hands on the financial support offered – and fast. To date, many have struggled to secure funding due to excessive red tape and reluctant lenders.

How startups can raise their odds

I would encourage business leaders to confront the challenges that lie ahead by leveraging tech to their best advantage. We are already seeing many instances of companies actively considering how they can pivot their services and adapt their offering; namely, by using tech to reach consumers directly.

Now that face-to-face experiences are, for the time being, out of the question, many businesses are running events such as webinar sessions digitally. Gyms and yoga studios are livestreaming their classes, with theatres, music venues and comedy clubs also live streaming performances. Delivery apps, meanwhile, are helping divert produce from cafés and restaurants straight to customers’ doorsteps.

Many businesses are also taking the opportunity to utilise software solutions in order to play their part in fighting the pandemic. Digital health startups have risen to the challenge of monitoring, and thereby reducing, the spread of the virus. Tracker apps, like the one developed by INKC19, have been made available to both support the NHS and give consumers a better understanding of the symptoms and effects of COVID-19.

Over the coming weeks and months, technology will allow businesses to continue providing their services, and ultimately help keep them afloat. There is no denying that the path ahead is unclear. What is clear, however, is that coronavirus will have a lasting impact on all sectors. That’s why I would urge policymakers to double down on their efforts to help the private sector weather the storm.

And finally, business leaders, I urge you to make the most of the technology that is within reach. This is the only way to ensure that we come out the other side with as little damage as possible.