It’s been a historic year for the wrong reasons
Startups are businesses too and amongst one of the underreported stories of 2020 is the toll that the Covid-19 pandemic and response has wrought on this most dynamic and agile of business sectors.
We’ve covered the latest insolvency statistics for September but some new research which focuses entirely on the startup sector reveals some stark realities facing the tech bros and sisters.
Specifically that over 1,000 tech startups have filed for either administration, dissolution or liquidation since lockdowns began in March with 273 in September alone.
These are the highest monthly figures recorded since 2011 and represent a huge 181% increase on August alone.
Inadequate access to funding is emerging as one of the main factors in the rise of the demise of startups.
Andrew Roughan, author of the research project said: “The energy that used to be palpable in some startup communities is starting to become muted. The energy has been sucked out of some startups where they are unable to access any funding and they see no end in sight.”
He goes on to highlight the disparity between mature companies and embryonic ones when it comes to accessing the available support schemes rolled out by the government such as the Job Support Scheme and the Future Fund.
The latter was designed to support startups through matching loans equal to funding provided by private investors in the business – but argued that this favoured well-funded Venture Capital (VC) funds that already invest heavily in startups and penalised new companies that relied on other forms of funding or less well capitalized “angel investors.”
One startup founder, Dami Hastrup of Moonhub, said: “It wasn’t geared towards genuine startups. We fit all of the criteria but we couldn’t even apply because it has to be done through an investor.
“The issue was that VCs weren’t investing so to fix the problem the government gave VCs more money.”
Even the JSS will do little to support early startups as it mainly benefits employers who can easily scale back their employees hours.
Chris Horner, Insolvency Director with BusinessRescueExpert said: “Sometimes even a great idea and a tremendous work ethic won’t be enough to sustain a new business – especially those facing the extraordinary circumstances of 2020.
“But any business, whether they’ve been going six months or 60 years, can benefit from professional advice from experts to help them make critical decisions now that might mean that even if the company has to scale back and go into survival mode now it will be around to have another go in six months time.
“Sometimes circumstances conspire against entrepreneurs and their young companies through no fault of their own but going through the administration or dissolution process professionally can also teach them some priceless business lessons they can apply in their next ventures”.
Startups are a fresh beginning
Hard economic times are always an opportunity for someone.
Whether it’s to pivot a business to provide a service that exactly what’s needed at the right time or to launch the perfect proposition at the right price point and place – there are always some winners.
The opportunity can also be to look at an existing business and see if some fundamental changes have to be made.
Twitter was a messaging app; Facebook was a dating service for Harvard students; Netflix sent DVDs to people in the post and there was Blockbuster in every town in the world.
Restructuring and recreating a company ready for the next move can be the most important decision a director can make and now is the perfect time to consider what’s next for you and your business.
Get in touch with us today to arrange a free initial consultation with one of our expert advisors.
They can help you identify what areas of your business are strong, what is weak and what has to change to give you the best chance of facing the future with the positivity of a Silicon Valley start-up.