APPG for Entrepreneurship

The COVID-19 pandemic and resulting lockdown has put businesses of all sizes under enormous strain. The government has responded to the economic turmoil with an unprecedented package of support for businesses across the UK. The support has ranged from loan guarantees of up to £5m rates relief for a range of sectors, to direct cash grants and the state picking up the wages of almost a quarter of the workforce. This is not to mention the Self Employment Income Support Scheme, which went live last week ahead of schedule.

However, many early-stage businesses, in particular those working in tech, felt as if the government had missed them out. Innovative startups are often loss-making early on, with uncertain revenues. As a result, they typically seek equity rather than debt financing. They also often opt for the flexibility of shared office spaces and thus would not qualify for the cash grants either. These concerns were crystallised in the Save Our Startups campaign, which was signed by over 6,000 startups and early-stage investors, and pushed for an equity-based alternative to the Coronavirus Business Interruption Loan Scheme.

The government responded to these concerns by announcing the Future Fund, which offered to match fund convertible notes (loans that convert into equity at a discount) for startups that have raised £250k in equity finance, and a new scheme of grants worth up to £10,000 to companies in shared workspaces to be distributed by councils.

While both schemes have been welcomed by entrepreneurs, it is worth noting a few concerns entrepreneurs have raised with their implementation.

More than thirty founders from some of Britain’s fastest growing startups have complained that the Future Fund’s requirement that a startup’s parent company be UK-incorporated. This excludes startups who have been through prestigious US-based accelerators such Y-Combinator and Techstars, even if all of their workforce is based in the UK.

Many startups and business angels were disappointed at the initial £250,000 minimum investment received requirement. However, some startups who thought they would qualify have uncovered a further hurdle. The Future Fund only allows Advanced Subscription Agreements, a method of equity finance similar to convertible loans commonly used by accelerators, to count towards the total invested if they have been converted to equity. This may exclude many high-growth startups that have been through prestigious UK-based accelerators.

There are also concerns that the cash grant scheme for startups in shared workspaces is insufficiently funded. Craig Cheney, deputy mayor of Bristol, told the Financial Times, the city had at least 1,700 businesses in shared workspaces but only £3.5m to allocate. “To give them all £10,000 we would need £17m.”

Speaking of cash grants

Enterprise Nation’s Emma Jones, one of the APPG’s advisers, would like to draw your attention to a new cash grant scheme they have set up working with Salesforce. Startups with at least two employees who haven’t received any other cash grant from the government can apply for a £5,000 grant. Businesses can apply here.

Upcoming Events

APPG for Entrepreneurship Webinars

We're organising a series of webinars to bring parliamentarians, entrepreneurs and the wider ecosystem together. You will have the opportunity before and during the webinar to raise questions. Feel free to forward these on to others who might be interested.

Members of Parliament or Peers who want to join the panel, or host their own webinar, should contact Philip Salter to arrange this.

Disability & Entrepreneurship in the Time of Coronavirus (in partnership with Disability Rights UK)
Featuring Dr Lisa Cameron MP, Liz Johnson (gold-medal winning Paralympic swimmer), and Kush Kanodia (social entrepreneur)
21 May 2020
1pm to 2pm
Register

This event will consider: the public health challenges for some disabled entrepreneurs; the support that government provides to entrepreneurs with disabilities and where more is needed; and potential post-coronavirus changes (e.g. changing working patterns, technologies etc.) and how they might support entrepreneurs with disabilities.

The Economy, Technology and Bouncing Back after Lockdown
Featuring John Penrose MP and Baroness Kramer
28 May 2020
1pm to 2pm
Register

This event will consider: the potential impact of Coronavirus on the economy and business practice; the fourth industrial revolution, and how tax system reforms will encourage economic growth.

Innovation, International Trade and Economic Recovery (in partnership with Octopus Group)
Featuring Andrew Griffith MP and Chris Hulatt (co-founder of Octopus
4 June 2020
11am to 12pm
Register

This event will consider: how UK startups can get back on track as the Coronavirus lockdown gradually eases; what the government is doing now and could do in the future to kickstart innovation; and how international trade will change after Coronavirus and how this will impact UK startups.

In Parliament

In a debate on the increase in the employment allowance, Lord Wei (Con) asked why the government was focussing on small businesses and employment rather than those who were self-employed and in freelance positions. He worried whether moves made to save jobs and keep people in employment were preventing people from generating future employment through entrepreneurship and self employment.

In a Commons debate on the same issue, Kim Johnson MP (Lab) welcomed the increase in the Employment Allowance, but expressed concerns that “some businesses are falling through the cracks, and the increase in the employment allowance will be of limited assistance to the many SMEs struggling to keep afloat during the covid-19 pandemic.”

In questions to the Treasury, Joy Morrissey MP (Con) praised the start-up loan programme. Chancellor Rishi Sunak restated her praise and added that coming out of coronavirus it will be the entrepreneurs of tomorrow who will help to create new jobs and drive prosperity.

In the second reading of the Finance Bill, Lilian Greenwood MP (Lab) drew attention to the problems faced by small businesses and start-ups in co-working spaces and other multi-occupancy buildings, saying “they pay their landlord a fee that includes rent and rates. The landlord does not qualify for small business rate relief, which means that neither the landlord nor the small business tenants can access the £10,000 small business grant.” She and her council have written to the Chancellor, urging him to address this anomaly.

In the coronavirus business interruption loan scheme debate in the Lords, Baroness Lane Fox (Crossbench) raised concerns about how the Future Fund was only made available to companies which had raised over £250k. She worried that this cut-off puts diverse funders and businesses based outside of the south-east at disadvantage and asked how the minister would ensure that the fund does not exacerbate existing inequalities.

Also in this debate, Baroness Blackwood (Con) asked for clarity about the Future Fund. She wanted to know whether companies would have a reasonable veto over whom the loans could be sold on to. The minister responded by saying they were considering the issue closely while working out the details of the scheme.

In the Commons debate on the coronavirus job retention scheme, Mel Stride (Con) asked whether the government could take a second look at the qualification requirements for the Future Fund, asking for EIS and SEIS investments to be accommodated in some way. Sunak responded that EIS was notified state aid and therefore presents a challenge.

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