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Background to the Capital Pilot Rescue Equity Funding Initiative

Empty Streets in Edinburgh

The COVID-19 crisis will cause the failure of tens of thousands of businesses. It’s already happening, despite the monumental efforts of the public and private sector to help them survive.

Early-stage growth businesses, including tech startups and scaleups, are particularly at risk because they don’t typically qualify for Government support initiatives announced to date. By their nature, these are loss-making and potentially pre-revenue businesses. Those that have revenues will now be growing more slowly because of the crisis.

What typifies these early-stage growth companies is their reliance on equity investment to build their business models and scale up. In the current environment investors are risk averse, and an investment process which is difficult in normal circumstances is well nigh impossible.

Many startups fail anyway for a variety of reasons, and in the current environment more “should” fail, simply because their business models are inappropriate for these changed times.

Many other startups and scaleups across the tech, consumer, healthcare and other sectors are at risk of failure despite their long term viability, all for the sake of a relatively small amount of survival funding.

And make no mistake, these companies are the lifeblood of future economic growth; the fuel in the bounce-back which we are all longing for, whether it begins in 6 months, 12 months or further in the future.

Well-designed “Save our Startups” campaigns have been launched by the poster children of the sector in the past couple of weeks. The typical request is for direct funding (non-recourse loans or equity) or relaxation of the Enterprise Investment Scheme tax incentives.

Neither structure is practical or politically acceptable. There is huge moral hazard in a blanket hand-out to startups, significantly trickier than the self-employed support announced two weeks ago. Relaxation of EIS looks like a badly-timed tax break for the rich (imagine all those footballers getting an additional concession!)

Besides, this is a £5bn problem. Imagine how far down the Government’s list of priorities it is when they are dealing with £100bn problems, life and death, medical supplies, basic infrastructure and continuity of distribution of food and medicine.

A cross between JFK and Norman Tebbitt would instruct startups to get on with it themselves, using their apparent resourcefulness to find a solution which does not rely on state handouts.

That’s what Capital Pilot has been working on, based fortuitously on 4 years of work to design a system of assessing and rating startups for investability and survivability. Like a credit score but rating the intangible, a quantitative measure of subjective judgements, standardised and scaled so that human intuition and clever data analytics are optimally combined.

Our rating system can select those growth companies which “should” survive, and deploy a few months of survival funding to them all within about a week.

Our Rescue Equity Funding initiative does not rely on, but can be supported by, Government. It requires well-meaning private sector investors who see the benefit in keeping these companies alive en masse, but who also have an eye on future value creation from investing small amounts of money in many businesses, some of whom will thrive in the future to the benefit of their shareholders and the economy overall.

This is a call for corporates, institutions, VCs, family offices and individuals to support a truly entrepreneurial solution to an entrepreneurial disaster in the making. That support is hopefully in the form of investment, but advocacy and introductions would also be warmly welcomed.

We want to make our first investments this month, but we need funding to make that happen. How can you help?

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