It seems Chancellor Sunak has responded to the pleas of the Start-ups in the country. A new scheme has been announced to protect fast-growing and innovative companies from the economic fallout caused by the coronavirus pandemic. The government has announced a consolidate stimulus package of £1.25 billion comprising of one fund worth £500 million for the fast-growing companies and £750 million package for the companies engaged in research and development. Chancellor Sunak while announcing the launch of the fund stated that this new, first of its kind fund in the world, will provide the much-needed access of the capital to these companies as they need to navigate through this difficult time. The fund will ensure that dynamic and fast-growing companies in the country across all sectors will be able to continue to do their extremely valuable work and create new ideas and spread prosperity. In the past few months, the government had announced a host of stimulus measures to help the industries tide over the current difficult period, but none of these was directed towards the start-ups and innovative companies. This announcement of the government is meant to fill that gap. The first payment under this new scheme is expected to be made by mid-May.
At the beginning of this month, several MP’s in the country had sent a request to chancellor Sunak to also think about the budding enterprises and come up with a suitable rescue package, so that there is no hindrance in the innovative work they are doing, and are able to safely navigate through these difficult times. The pandemic has created havoc around the world, and in the United Kingdom, it has brought several large as well as small firms to the brink of bankruptcy. The situation is though precarious for all businesses types but is particularly dangerous for the most vulnerable class, that is the start-ups. These buddying businesses, working on perhaps some of the most innovative and scientific cutting edge ideas are in a stage where they have not seen any revenues and are dependent of financial support of their angel investors, who given the current economic situation are themselves contemplating deep spending cuts to safely sail through the pandemic storm. In the unfortunate circumstances that any of these companies fail, it will not only lead to a severe beating being dealt with the entrepreneur spirit of the country but will also lead to a severe value erosion of the angel investors and other funds that support and promote small and innovative ideas in the country. In subsequent periods support for the start-up ecosystem in the country will suffer, leading to few innovations and business ideas generated in the country seeing the light of the day. Amongst the various stimulus packages announced by the government so far in the last one month for the small-sized companies, incidentally, do not fit into the start-ups as they do not have many employees and hence do not come under the eligibility criteria of these stimulus packages.
In this regard, it is worth noting that the characteristics of a start-up can be quite different from that of an established company with a reasonable turnover. The larger companies have a large revenue base, employs a comparatively larger number of people and more often than usual have strong creditworthiness. These companies pay taxes to the governments and municipalities and contribute significantly to the development of the locality where they are located. These company have a higher stake for the government and the society, should any of them fail, it will lead to a significant loss to the economy on taxes as well as employment. A start-up company initially has very few employees, no profits against a little or no revenue generation and they also don’t contribute significantly towards the development of the areas where they are located at. They are almost dependent on their angel investors who promise to support them till they reach sufficient maturity levels so that they may be able to generate revenues and become sustainable. In all the announcements made by the government in the recent past regarding stimulus packages, the overriding intention was to protect employments in the country, to protect good revenue-generating companies so that its tax sources do not dry out. Start-up firms thus do not fit into that picture anywhere as they would seldom stand close to those businesses who would fulfil these objectives. However, these companies are important for the country in their own way, as they deliver the future value creation capabilities of the country, making them extremely valuable assets. Several listed as well as non-listed start-up in the country, are doing some very high-value innovation work, which can give the country a technological and industrial edge in future. Across sectors, be it fashion, retail, military hardware, pharmaceuticals, Information technology as well as several other new and innovative fields, which have the potential to be industry classes of their own, are now budding in their labs in these companies. The British government understands the importance of the companies and has a long history for supporting innovations. In the past it has taken several steps to support start-ups and innovative companies in the country, the London Stock Exchange has a separate trading market called the Alternative Investment Market (AIM) dedicated to these companies. This market on the exchange provides these companies with a wider platform to access broader and niche investors to raise funds in addition to a more relaxed regulatory environment, unlike the one which needs to be adhered to by the larger and more established companies listed on the exchange.
There are, however, several regulatory issues that need to be sorted out first before this stimulus package can be availed of by these companies. While the cash injection scheme for the smaller companies was in the form of part payment of salaries of employees and other expenses, the same regulations will not be effective for firms with fewer employees. The fund created by the government will have to take up equity stakes in these companies in order to inject funds into them.
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