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Seed-Stage Funding For Start-ups Drops By 80%

Posted 2 months ago

Seed-Stage Funding For Start-ups Drops By 80%
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Early-stage businesses raising money for the first time have taken the hardest hit in the drop in venture capital funding, it has been revealed. According to new research by Plexal and Beauhurst, funding for UK-based start-ups raising for the first time fell by over 83% between 23 March and 17 May, compared to the same period in 2019.

According to Andrew Roughan, managing director of Plexal, the government needs to do more for first-time founders.

“We risk losing a generation of tech entrepreneurs at the earliest stages of their startup journey. By only backing companies that have already raised funds, investors are ignoring the very companies that will define the future success of the British economy,” said Roughan.

The report also found that since lockdown began in March, just 5% (£52m) of the £1bn raised by British tech start-ups has gone to companies raising funds for the first time. 

The figures show that investors are becoming more and more risk-averse, while suggesting that VCs are becoming more sceptical of founders they’ve only met virtually and don’t have a pre-existing relationship with. Entrepreneurs may also be holding off starting their ventures until after lockdown.

Beauhurst’s research showed there had been a big dip in funding across start-ups in May compared to April, hinting that “initial signs of resilience” seem to be waning. That means start-ups who have already raised capital will be heavily competing for funding too, facing growing pressure to sustain their workforces and settling for down rounds.

Commenting on the research, CEO of NextFin, Sacha Bright said: “Equity Crowdfunding is a different picture. We have seen an increase in the number of pitches this month. However, the data is clearly skewed by companies raising larger amounts.

“The number of companies raising capital has significantly decreased and many crowdfunding sites will not allow you on their platform, unless you have between 50-80% of your funding pre-registered. So there are many businesses waiting to crowdfund, including ourselves.

“I also have been working with a takeaway food delivery company called GoGetters who is looking to raise £2m. Their turnover has trebled, they are making a profit and in normal times, this would be easy to raise this amount of capital for a company doing so well. Many funders are supporting their own investments. Or, don’t have the resources to do due diligence through lack of staff due to the coronavirus.”

Author: Sacha Bright & Oliver Murphy

Disclaimer

To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.

Tagged: Start-ups Raise Finance Entrepreneurs Investment



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