The leaders of some of the UK’s most successful technology startups sent a letter to the chancellor Rishi Sunak yesterday claiming that they are being left behind by his various government-backed business interruption schemes, announced as a result of the COVID-19 global pandemic.
The 12 executives have asked the chancellor 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.” You can read the letter in full here.
The letter has been signed by founders including Ali Parsa of GP app Babylon Health, Hayden Wood of renewable energy provider Bulb, Poppy Gustafsson at cybersecurity darling Darktrace, Herman Narula of Softbank-backed Improbable, Azmat Yusuf of Citymapper, and Will Shu of Deliveroo, the food delivery service which is booming during the pandemic.
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Many of the signatures come from well-funded so-called ‘unicorn’ status companies, which have reached a private valuation of at least $1 billion, but any connection between them is less clear.
The likes of AI services startup Faculty (which raised $10.3 million in November last year while profitable, according to Pitchbook), Five AI (which raised £41 million in March) and crypto exchange Blockchain (£70 million in funding, according to Crunchbase) have raised far less funding than other signatories of the letter.
Being unprofitable means many of these firms won’t qualify for corporate finance loans but are too big to qualify for small business relief. This includes the chancellor’s COVID Corporate Financing Facility (CCFF), Coronavirus Large Business Interruption Loan Scheme (CLBILS) and Coronavirus Business Interruption Loan Scheme (CBILS).
“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 executives jointly wrote.
“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 Treasury has said it is currently investigating ways it can work with the UK’s venture capital firms to find ways to ease cash-flow issues for companies in the high-growth technology sector.
A Treasury spokesperson said: “The tech sector is a central pillar of the UK economy, and we recognise there are significant cash-flow challenges for high growth and early stage technology companies. We are working urgently in government and with the venture capital finance sector to assess these issues and consider how to best support them.”
Meet the unicorns
Despite being loss making many of these firms will still have significant runway during a recent boom in startup funding – more than £10 billion last year according to Tech Nation – unlike smaller firms that are reliant on physical events or visits to their premises to drive cash flow.
AI chipmaker Graphcore, which signed the letter under the name of CEO and cofounder Nigel Toon, raised $150 million at a $1.95 billion valuation in February this year from the likes of Baillie Gifford, Mayfair Equity Partners and M&G Investments. Improbable, which builds massive online worlds for the games sector, made headlines in 2017 when it raised $502 million in a Series B round led by Softbank.
In its most recent annual report, Babylon CEO Ali Parsadoust wrote: “In August 2019 the Group secured funding of $380m from numerous investors as a result of a Series C investment round. During the current year and subsequent to the year end the group has also signed a number of major contracts, some of which, include a prepaid component.
“Consequently, the directors are confident that the company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.”
Far from furloughing staff, companies like Deliveroo, Babylon and Graphcore appear to still be hiring for up to hundreds of open positions.
“Our sector will be crucial to helping the UK economy bounce back quickly after the pandemic. However, it has not yet received government support, unlike our competitors in France and Germany,” the letter adds.