By Red Herring
A dozen of the UK’s leading startup founders have written an open letter to the country’s chancellor, Rishi Sunak, pleading for changes to Downing Street’s COVID-19 business relief packages.
The letter, released on Wednesday (April 8), states “concerns” that Britain’s “high-growth UK tech sector will be put at risk” by Parliament’s raft of Coronavirus plans, which experts believe will cost around £428 billion ($530bn).
The plan, announced late last month, includes a business bailout package worth £350bn ($433bn), plus state grants of up to 80% of employees’ furloughed salaries – worth up to £2,500 ($3,100) per month, just about the national average.
Yet the open letter—penned by firms including Deliveroo, BenevolentAI, Citymapper and Graphcore—criticizes the plan’s supposed bias towards “longer-established businesses.” The startups’ investment in “technology and growth rather than short term profitability” means they are currently unable to access the schemes.
“Our sector will be crucial to helping the UK economy bounce back quickly after the pandemic,” the letter continues, citing Britain’s “world class” innovation. “The high-growth tech sector has a vital role to play in the future success of the UK economy.”
The letter also cites bailouts offered to companies in neighboring France and Germany – though those countries’ schemes offer grants to almost all small- and medium-sized businesses, not tech startups specifically, with an emphasis on staff rather than firms.
Critics have pointed to the startups’ huge levels of VC funding, however, and their lack of profit, as proof they should fall below the government bailout requirements. Delivery service Deliveroo has won over $1.5bn since its 2012 founding – and has caused controversy over its treatment of workers. AI firm Improbable raised a $500m Series B round in 2017.
“Of all the threats that Covid-19 poses, the threat to early-stage startups is the least we should worry about,” writes investor Robin Klein at Sifted. “I’m far more concerned about companies and freelancers whose revenues have collapsed overnight and whose recovery is very uncertain.”
Klein points to a generally strong UK tech market, and the fact 93% of startups never make it to a Series A funding round, as reasons why startups shouldn’t be bailed out. “Has the current crisis increased the likelihood of more than three quarters of startups being unable to raise further funding,” he writes. “I don’t believe so. Venture capital funds in the UK have more than enough capital and the incentives to fund the best companies.”
With increasing numbers of Britons getting ill with Coronavirus—including Prime Minister Boris Johnson—and millions more forced to work from home, it appears unlikely Chancellor Sunak will heed the startups’ call.