Entrepreneurs are the soul of what has made our economy great. They build high-growth businesses on sheer vision, resilience and grit. The best of Britain’s DNA, like Monzo, Made.com, Mindful Chef and Mr & Mrs Smith are transforming industries and advancing us towards a more engaged, purpose-driven world. We all want a swift resolution to the health crisis, which doesn’t end in too much pain. We need an urgent and careful examination of what our post-pandemic prosperity looks like. Courageous innovators will be a pillar of our new normal as crises have always historically generated new ways of living and doing business.
Imagine a world without Monzo, Revolut, Deliveroo and Citymapper. The current crisis has exposed our reliance on these game-changing businesses which cover our cashless needs, to home food delivery, to a city mobility index.
They may be high-growth, but these businesses are yet to make a profit. And in our world which pivots around industry and ideas, that’s not always our first concern. These are the poster children of Britain’s best disruptive business, a handful of the 29,500 high-growth firms, employing nearly 330,000 people in the UK and abroad, according to Beauhurst, the independent analysis firm. Quite a measure of what the future looks like.
So, how is it that current coronavirus business measures have overlooked firms like these? The Coronavirus Business Interruption Loan Scheme (CBILS) offers loans of up to £5m for small and medium enterprises, given out by commercial lenders, and backed by the British Business Bank (BBB). The package from the Chancellor of the Exchequer, Rishi Sunak, ignores the current need of high-growth businesses who don’t tick the box of being a traditionally qualified borrower. For start-ups, it’s as if Sunak is leading them like lambs to the slaughter with no sense of their value to the UK.
The main problem (there are others which I won’t go into), is that to be eligible the BBB says a business must have a “borrowing proposal which, if it were not for the COVID-19 pandemic, would be considered viable by the lender.” A swathe of businesses who don’t fall into the lending categories defined by commercial lenders are excluded. A lender might consider their debt-service ratio as unhealthy. Already stretched commercial lenders can’t possibly have the motivation or expertise, given the weight of pressure on their own operations, to lend more than they should.
Angel investors, private equity, venture capital and crowdfunding have been the springboard for entrepreneurs to breathe life into their visions. The UK is leading the charge on investment in entrepreneurs. But under the current challenges, we can’t continue to do this alone, not if we want to continue to produce brilliant businesses.
COVID-19 is a sharp shock to our financial system - and who knows how long its impact will endure? Tens of thousands of growth businesses will be suffering lost or deferred revenue and disruptions to their cash-flows. Yet they won’t be able to access the CBILS-guaranteed facilities of up to £5m on repayment terms of up to six years.
This is shortsighted and foolish. The durability of these businesses hinges on identifying what’s going to drive the ‘new normal.’ Ideas from gifted entrepreneurs will never dry up, so let’s ensure that capital continues to flow to support the visions they battle so hard to get off the ground. After COVID-19 is tempered, we’ll be in more need than ever to sustain businesses with impressive growth.
A vibrant industry of belief in these businesses already exists. Beauhurst’s scale-up index identified 5,456 ‘scale-ups in 2019, up from 4,420 in 2018. Only entrepreneurs in shape-shifting businesses are able to boast enviable growth of 23%. These businesses will be the employers of the future, the businesses that hire your children and usher in a carbon-free world.
Crisis brings out the best in entrepreneurs - some like BrewDog trying to do good put their business on a war footing by making hand sanitiser rather than beer. Their communities, including their employees, suppliers, and partners, and crucially their customers, are rallying around them.
Entrepreneurs understand volatility and unpredictability, and we are agile, and innovate in response. This time the fallout from the crisis is likely to be deep and protracted. What we need from the authorities are specific measures to alleviate the pain for Britain’s brightest businesses, the nucleus of Britain’s future commercial success.
So, we ask the Chancellor to keep Britain’s leading place as a global entrepreneurial hub, a benchmark for the rest of the world, and enact more measures to support entrepreneurs before it’s too late.
Firstly, Mr. Sunak should steer a relaxation of the CBILS rules to include high-growth businesses who don’t display standard accepted features of profitability. The exchequer should underwrite 100%, rather than 80%, of the loan to de-risk it from the bank, so the lender is just a middle man. Get the money to the people who it need, quickly. At 80% banks are currently still taking on a risk on 20% of the loan, which means they’re enforcing traditional ‘pre-crisis’ lending criteria, including enforcing personal guarantees from directors. This feels to me like the post 2008-financial crisis era, when we set Crowdcube up to lower the barriers to investment. The business landscape has changed dramatically, and this failure to underwrite all loans smacks of the autocracy of that age when institutions ruled the roost.
Secondly, the same government scheme, the Enterprise Investment Scheme (EIS), that has attracted investors to Crowdcube should have its tax relief raised from 30% to at least 60% in my view. The EIS and its younger sibling, the Seed Enterprise Investment Scheme (SEIS) have enabled many high-risk and high-growth businesses to launch and to thrive.
And thirdly, a rallying call to all everyone. Entrepreneurs and their suppliers and employees (the 328,000) rely more than ever on their communities to sustain them during this rough period. Buy their products, use their services, tell your friends too, and if there’s an investment gap to close, then shut it tight. As we come out the other side, we need the hope that these companies already hold to heart. They’ll be faster, more agile and responsive to our needs, than incumbents. Entrepreneurs will be part of the solution, as we come out the other side a more benign, wondrous world with our health and economy intact.
Darren Westlake, Co-founder and CEO of Crowdcube