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SUPPORTING STARTUPS THROUGH THE COVID-19 PANDEMIC

Advice to startups on courting investors during Covid-19

You can only admire the indomitable spirit of those who spot the opportunity, take the risk and start a new business, even at the darkest of times. 

During the last few weeks, I had expected entries for this year’s Wales Start-Up Awards to have petered out given that filling in an online form would have been the last thing on any entrepreneur’s mind. 

In fact, last week I contacted the two hundred plus entries received so far for the 2020 awards to ask if they would want to withdraw from this year’s competition. Not only did no-one pull out but a significant number wrote back to say they were looking forward to celebrating at the awards if things got back to normal in September. 

Whether that is the case or not will depend on factors well beyond their control but it shows that the indomitable attitude that makes these entrepreneurs so special is alive and well across all sectors of the Welsh economy.

And we will need that spirit, drive and enthusiasm over the next few months more than at any other time, especially given that, as in previous economic downturns, larger firms are more likely to shed jobs despite the government-backed furloughing of posts for three months.

In addition, academic research shows that firms that are less than five years old create almost all net new jobs in an economy and, more importantly, they are those businesses that are agile, flexible and able to pivot their strategies to suit the current economic environment.

Given this, you would have thought that start-ups would be at the top of the list for financial support from government during the current Covid-19 crisis.

Unfortunately, that has not been the case and it would seem that help for start-ups has fallen between the cracks of the unprecedented levels of support that is currently available for businesses across  the UK.

Let’s take, for example, the new Income Support Scheme grant for the self-employed that was recently introduced as a result of pressure from business groups and politicians. 

Due to the restrictions within the scheme, founders of start-ups established in 2019 and 2020 are unable to claim support through this scheme because they will not have submitted any tax returns for 2018-19. That means that as many as 340,000 new businesses in the UK will not qualify for government support because they were started in the last fifteen months. Fortunately, this anomaly can be easily solved at either a Welsh or a UK Government with a bit of imagination.

First of all, let’s agree that, as with the self-employed grant scheme, all start-ups should get a taxable grant worth 80% of their trading profits up to a maximum of £2,500 per month for the next 3 months and, as with the other schemes, this could be extended if need be. 

To qualify as a start-up, all businesses would have to have registered with HMRC as a sole trader or a partnership or as a limited company with Companies House. They would also need to be currently trading and intend to continue to trade in 2020 and as for self-employed people. the start-up’s trading profits must be less than £50,000 per annum (but this could be pro rata depending on when the business was set-up). 

Finally, and in the absence of any self-assessment returns, the profitability could be assessed through the provision of bank statements to demonstrate income and expenditure. Ironically, that would provide more up to date information on the viability of businesses than self-assessment forms from last year.

If adopted, this would ensure that hundreds of thousands of start-ups previously left out in the cold would get the financial support they deserve. This could be supplemented by more specific measures that have been proposed for start-ups operating in technology sectors, including enhanced R&D tax credits and the provision of funding to ensure that these businesses do not run out of money before their next investment round.

Of course, we have no idea when things will get back to normal and, to be honest, what that new normal will be but the real question is whether that recovery from the current shock will be slow and severe or if, by protecting and supporting those entrepreneurial job creating start-ups, there will be an uplift in economic fortunes sooner rather than later.

If this is to happen, policymakers must not only support start-ups now but learn lessons from prior economic downturns in ensuring that some of the barriers, such as the lack of credit for small firms after the recession of 2009, are avoided to ensure that new firms have enough funding to grow and create new jobs in the economy. 

And if it is more than likely that this recession will result in older and bigger firms shedding jobs or be unwilling to take back those they have furloughed, then it will be younger businesses that will, as always, have to take up the slack in creating employment opportunities. 

Certainly, the Covid-19 crisis has resulted in unprecedented historical action by the UK Government to preserve our business community. However, when we finally emerge from these dark days, we may need even more radical thinking to boost the potential of our entrepreneurial businesses and their ability to create wealth and jobs across this nation.







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