Yesterday, along with a wide range of startup ecosystem and community partners we launched a new campaign called ‘Save Our Startups’ – asking the Government to protect our early stage tech startup ecosystem through this crisis.

You can read more about it and sign up to support here

We urge you to do so, but I also wanted to take some time to explain what we at Coadec have been doing to engage the Government to find a solution to the liquidity crisis facing startups as a result of COVID19.

This might be a little long (if you would prefer to read in a Google Doc you can here)…and understandably there may be some disagreement in the community about the ‘perfect’ answer – but we want to explain what we are suggesting and why we are out there advocating publicly for the Government to act.

1. What is the problem?

The funding environment for early-stage tech companies has fundamentally changed as a result of the crisis. You can look at the data or you can read the stories of term sheets pulled and previously on-track businesses struggling – both are clear on the huge negative impact. Many companies who had been hitting their pre-crisis targets are struggling and without help many will go to the wall.

This is the case across the tech ecosystem – and we are supportive of a range of approaches that can address specific need at different funding levels – but our work has focused on the seed stage (more on the broader scene later).

There are over 1300 companies that have raised between £100k – £2m in the past two years and fall into this category. That means if action is not taken, the UK Economy will lose two years of tech innovation: circa 6,000 jobs today but also crucially undermining companies expected to provide 50,000+ high wage jobs in less than five years in areas like Fintech, HealthTech and DeepTech. This is the part of the economy that helps future-proof all the other parts, from retail and banking through ecommerce and public services. These companies are vital to our post-Brexit, post-COVID19 future.

2. Why can’t/won’t existing investors plug this gap?

Most of the companies at pre-seed and seed stage are funded by crowdfunders, angels, micro VCs and EIS funds. Even great companies that had been meeting all pre-crisis targets will struggle to get funded now if they are dependent on angel investors (who are fleeing the market having been hit hard by the broader economic impact that has taken a toll on markets), or on a limited number of funds that have capital available to them.

While this limited number of funds will continue to invest (though not as many are carrying on as are saying they will…), the vast majority of this money will be pushed into their existing portfolios to ensure those companies can survive through this period. This means that a large number of these 1300+ companies (whose investors don’t have access to cash to invest) will not get funded.

3. But hang on, wouldn’t some of these startups have failed anyway?

Yes. Some would. Just like many of the other small businesses who are currently being helped by the Government through the impact of the crisis. The point is not that companies would have failed or succeeded – but that the Government has taken a decision to help companies through the crisis, and the existing help (unintentionally) is not available to tech startups. We want to make sure that the help startups get is on par with other parts of the economy.

4. Why don’t existing schemes from the Government tackle this problem?

The existing UK Government support package is not suitable for early-stage tech startups because:
The CBILS loan financing is not an option. Because growth-focused startups are loss-making, even with Government loan guarantees – startup business models don’t lend themselves well to such loans and startups do not qualify for this programme, which has been confirmed by lenders on the CBILS scheme.
Rates Relief and grants based on payment of business rates won’t help. They are much less likely than average to pay business rates as they are frequently subletting or in coworking spaces – meaning they often don’t qualify for this support either.

So that leaves only the Coronavirus Job Retention Scheme aka the furlough scheme. Obviously, many startups could (and will) use this to conserve their cash. But there are two issues:
– First, in many cases – the Government furlough scheme doesn’t cover the costs of highly-skilled and highly-paid tech talent, meaning that startups face a choice of running out of money or potentially losing key talent they can’t afford to keep to the likes of the tech giants.
– And second, it would be hugely harmful if tech startups – who mostly are able to continue working on their products from home through this crisis if they have the cash to do so – were set back 6 months in the global tech race (when France & Germany as well as a range of other European nations are doing much more to keep their startups growing through the next six months).

5. You mentioned France & Germany, what else is going on internationally that we can learn from here in the UK?

Other Governments are acting to protect their startup ecosystems. The French Government announced a €4bn package and the Germans have announced an additional €2bn. There are also some interesting ideas in Ireland on front-loading R&D tax credits. Our friends at France Digitale are actually pulling together a summary of the help available across Europe – but the main thing for startups in the UK to know is that right now we are lagging behind in terms of support.

6. Okay – so the Government needs to act. What is Coadec suggesting?

The first thing to say is that any action is better than no action.
At Coadec, we’ve been in the weeds of plans, but ultimately we know that of the many suggestions to Government – all of them are better than what we have right now, which is startups dying because they aren’t able to access the funding help the Government is offering to other small businesses.
We’re supportive of any solution that can help the community work through the crisis – and will back anything that does so. We’re also aware that companies at different stages of their development may need different answers. So this is what we’re currently discussing with the Government.
More money through R&D tax credits, InnovateUK grants and any other funding pot the Government has available to them

The first suggestion is to get money out of the door to startups as soon as possible. In our previous work on the R&D tax credit, our research showed that 69% of startups saw the R&D tax credit cash as ‘very important’ to their early stage survival. That’s even more the case now – so we’re pushing the Government to do more. This could look like the Irish scheme which frontloads payment of the credit – or could simply mean Ministers bashing HMRC on the head until they pay out faster… but both would mean more liquidity in the short term.

There’s also existing money sitting in InnovateUK and elsewhere in Government that could and should be tapped at this crucial time. However this isn’t the whole solution, this might buy startups some time – but won’t see them through the worst of the crisis. That’s why we’re also suggesting…

The Runway Fund

Coadec (along with Capital Enterprise, firstminute Capital, PUBLIC and 50+ investor and community organisations) has been working on a proposal for a not-for-profit ‘Runway Fund’ that would see the Government allocate capital via the BBB to invest in convertible ‘SAFE’ notes in up to 600 seed stage companies.

This would be run via an independent structure staffed by fund managers from across the ecosystem and have a mandate to deploy capital as quickly as possible to help companies through the crisis. The fund would be focused on companies that have raised less than £5m total previously, had not raised significant funds in the past 3 months, and based on a quantitative criteria as much as possible.

For us, the most important part of this structure is the convertible mechanism. We think these ‘SAFE’ convertible instruments are the best way to get money into these startups because they could convert at the company’s next funding round – this gets around the challenge of how you could possibly value these companies during the worst of the crisis.

Not only that, but because the Government funding would be investing in up to 600 companies across the different verticals – for want of a better description, buying an ‘index fund’ of early stage UK tech – we’re confident that enough of these great companies would succeed that this would be a structure the Government would actually make a profit on!

This is a model that has been adopted by the French Government, who have committed €80m of public funding which is being matched by €80m of private capital into a fund to invest in these notes for startups. Whilst a substantial amount of this capital would need to come from the Government – we believe that this fund level match (supported by private LPs) gives startups outside London, university spinouts, those in respected accelerators and R&D intensive verticals like DeepTech a better chance than a typical co-investment arrangement on a deal-by-deal basis. If the Government did want to do something on a deal-by-deal basis – it can’t be a straight 50:50 match of public and private money and should be more flexible to ensure that great companies without existing investors with lots of capital available can access cash.

I don’t want to get too much further into the weeds of this proposal here – but if anyone wants to ask any questions, raise concerns or on how this would work or raise any concerns. Feel free to contact me and I’d be happy to answer them.

7. What if my startup has raised too much money to qualify for the fund Coadec is advocating for?  

As we said, we have been focused at the seed stage where we believe the impact of the downturn will be most acutely felt. Further up the market where there is more capital still available and – we’re supportive of a more traditional deal-by-deal co-investment arrangement where private investors would work alongside additional Government scaleup capital through the BBB. This is being discussed with the Government alongside seed-stage measures.

8. So what happens next?

We’ve spent the past two weeks working night and day to make sure everyone in Government is aware of the problem – and that it needs fixing. We’ve had more meetings than we can count with HMT, DCMS, BEIS, the British Business Bank, DIT, & the rest of the Government alphabet. We’ve harried ministers, badgered Special Advisers and bombarded journalists.

And…. we’re getting there. Slowly. We’ve had 12 MPs write a letter to the Chancellor (and we’re picking up more every day), 7 leading tech industry groups have also written the Treasury, 60 AI startups have explained to Dom Cummings why they need help, and there has been tonnes and tonnes of media coverage highlighting the impact on founders and startups of this economic shock – including this spread in the Sunday Times yesterday.

But we’re still waiting for a deal. So we’ve still got work to do. That’s why we’ve launched Save Our Startups and that’s why we’re still banging the drum for a package. If you want to make sure your voice is heard – do sign up to the Save Our Startups campaign so the Government can see just how many of you need the help we’re talking about. And if you have any thoughts, ideas, suggestions or just want to help – do email me at We’re here as a community resource and will continue to answer your questions and concerns throughout this crisis and beyond.