Investment in start-ups increases by one third to £663m since lockdown

Investors double down on existing tech investments but start-ups in other sectors struggle to find the investment they need

 Interior Plexal innovation centre and co-working space East London, start-ups lockdown concept

Inside the Plexal innnovation centre and co-working space in East London

UPDATED: Britain’s start-ups have raised £663m in investment in the four weeks since the country went into lockdown – an increase of 34 per cent year on year.

This was led by the tech sector, with most investment going to start-ups in fintech, AI, cybersecurity and blockchain. Of the amount raised, £50.2m went to tech start-ups which had never actually raised funds before.

Analysis of almost 30,000 companies by East London innovation centre Plexal and Beauhurst indicates that, despite fears tech investors are pulling out of agreed deals, they are in fact doubling down on existing commitments to tech start-ups post lockdown.

However, despite the ability of a relatively small number of tech start-ups to raise investment since coronavirus, most fast-growth small companies are struggling to find investment.

Kerry Baldwin, managing partner of IQ Capital pointed out that although the total investment amount is up on the same period year on year, the actual number of companies being invested in is down. Which means that the majority of these investments are large rounds into later-stage companies.

Baldwin said: “I suspect that many of these rounds will have been agreed before we truly entered the lockdown period. We will only get a complete view of what deals have originated during the lockdown in the months to come.

Despite recent announcements from the government about the Future Fund for growth businesses and loans being distributed by Innovate UK and the British Business Bank, these figures show that while some start-ups are continuing to attract investment, the vast majority are struggling to raise funding.

“I would urge anyone reading these figures not to get a false sense that early stage companies are doing fine,” Baldwin said.

>See also: Over half of start-ups only have enough cash flow to survive six months

The number of deals closed in the last month (114) decreased by 39 per cent compared to the same period in 2019 – acknowledged by experts as a more accurate barometer of investor confidence.

The scale of the challenges facing many start-ups is clear. After four weeks of lockdown, nearly 1,000 small businesses find themselves in administration (263) or liquidation (707).

Andrew Roughan, managing director of Plexal, said: “While the Future Fund is an excellent first start, it’s clear that more is required to protect the businesses that have driven job creation and economic growth in the UK for the last 10 years. While tech start-ups have shown remarkable resilience in their ability to continue attracting investment, the success of the few mustn’t overshadow the struggles of the wider majority of British start-ups.”

Henry Whorwood, head of research and consultancy at Beauhurst, added: “While the data shows an immediate downturn following lockdown, our hope is that the start-up and technology sectors will remain resilient during this economic disruption. The concern is that a reduction in the number of deals reflects a fall in investor confidence that could cripple the growth of the country’s most successful start-ups and fast-growth businesses.”

Further reading

Government considering rescue funding package for unicorn businesses

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