As we wait for the imminent launch of the Government’s Future Fund we decided to look at how many startups and scaleups will actually benefit from any of the various COVID support measures announced to date.
Lots has been written about eligibility criteria; less so about impact. It’s a tricky analysis, and we don’t claim to have it exactly right. But let’s cut to the punchline. Over 60% of growth companies won’t get anything from CBILS, Future Fund, Bounce Back Loans, Innovation Loans or Grants.
We start off with Beauhurst’s universe of 28,499 “Ambitious Companies” – selected because they fit the startup/scaleup/growth company definitions; have raised equity capital, received grants in the past or been part of an accelerator programme.
We then look at how many of those companies are eligible for the Future Fund based on the primary test – having raised at least £250,000 in the past 5 years. Beauhurst did this analysis for their Covid-19 Business Impact Report on 20th April and it’s worth a read. 7,629 of the 28,499 companies they cover have raised £250,000 or more. Just 28%.
What the Beauhurst blog doesn’t look at is the fact that there is only £250 million of funding available (initially) from Government for Future Fund. A simple distribution analysis suggests that the £250 million will go to around 1,100 companies – 14% of those eligible, or just 4% of the Beauhurst universe.
The same approach has been used for Innovation Loans and grants. We know the average size of Innovation Loans historically has been £700,000 so the £150 million will go to 215 companies. And we understand that the £400m of new grants will go to 1,200 companies, with an estimated 400 companies receiving additional funding on top of existing grants from the £200 million allocated to this segment.
CBILS are targeted at later stage businesses, so we have estimated a small percentage of the Beauhurst universe as being recipients of this support – 10% of the Future Fund eligible companies.
The big swing factor is Bounce Back Loans, where around 250,000 companies overall have received loans in an astonishingly short time. But these are mainly not in the “Ambitious Companies” universe which Beauhurst covers, and all of them are companies that can claim against significant 2019 revenues, which rules out many startups. Our analysis of Bounce Back loans is educated guesswork. We estimate that 25% of Future Fund eligible businesses, and 30% of ineligible businesses will receive Bounce Back loans. For later stage businesses the Bounce Back loan is not necessarily significant enough to bother with, and for earlier stage businesses, many lack the £200,000 of 2019 revenues to achieve the maximum £50,000 loan.
What we have not factored into our analysis is that the same company might receive more than one package of support. In theory a company could apply successfully for Future Fund, Bounce Back Loans, Innovation Loans and Grants. Our analysis conservatively assumes each company only gets support from one scheme.
And here is how it looks – first for companies which meet the Future Fund threshold of £250,000 of funding to date, and second for those that don’t.
Capital Pilot’s Rescue Equity Fund has always been focused on seed-stage companies which don’t meet the Future Fund criteria. Our analysis demonstrates that there is a huge gap in the market for these companies, and it is critical they receive support. They are the lifeblood of entrepreneurialism and the drivers of our economic recovery. Capital Pilot and Rescue Equity Fund are doing our best to fill it as soon as humanly possible.