Funding in the age of Covid-19

With so much coronavirus uncertainty, investors may be even more careful about where they put their money. So where should start-ups be looking for capital?

The Covid-19 pandemic has been a shock to start-ups that previously had a reasonable expectation of being granted loans or raising capital from investors. At this critical stage of the business lifecycle an injection of cash can be essential if a company is to get its products and services to market and realise its full potential.

Since the March lockdown sent the economy into a tailspin, however, investors are being forced to consider much more carefully where they invest their cash. Some have seen the value of their existing portfolios plummet and now have less resources to draw on. Yet options remain for those entrepreneurs that can demonstrate they have a really promising proposition and here we’ve considered the likely sources of funding available today.

Government loans

Government-backed loans have been introduced to help businesses. Three schemes are available through a range of lenders and partners accredited by the British Business Bank:

• Coronavirus Business Interruption Loan Scheme – loans up to £5 million for SMEs

• Coronavirus Large Business Interruption Loan Scheme – loans up to £200 million

• Business Bounce Back Loan Scheme – loans up to £50,000 for SMEs.

However, many promising start-ups operate at a loss in the early days, which has meant that they have been unable to access these loans. A fourth scheme, the Future Fund, delivered directly by the British Business Bank, is aimed at them. It is open to firms that have raised at least £250,000 in equity investment from third parties in the past five years. Loans of up to £5 million need to be matched by private sector investment and will convert into equity unless investors choose to repay the cash.

By mid-July, loans totalling £45.3 billion1 had been delivered by the four government schemes – something that is “obviously a positive”, says Crawfurd Walker, our Chief Revenue Officer. But he adds that companies’ experiences of these schemes have so far been varied.

Investors looking for deals

Away from government loans, Crawfurd says the investment environment is “a bit more risk-averse”, but stresses there is “still money to be invested and people are still looking for good deals”.

The challenges of Covid-19 can even be a positive for start-ups pitching for funding. Crawfurd explains: “Angel or venture capital investors want to see that management have been proactive during the pandemic – either by controlling cash or by showing agility in rejigging their business model to reflect what’s happening in the marketplace. Show evidence of that and it will give investors confidence.”

Start-ups from sectors like technology, healthcare and infrastructure are more attractive, but all investors have the same essentials on their ‘shopping list’: a good proposition, a good business model and a strong management team.

Crawfurd believes investors with existing portfolios are prioritising the injection of money into businesses in which they already have a stake. But for other investors, the pandemic is an opportunity to invest in companies they haven’t had access to before. “Not only do these companies suddenly need funding, but the value will have taken a knock because of pandemic uncertainties,” Crawfurd says.

For early-stage start-ups, investment from family and friends remains an important option, but because of the higher potential risk, this will likely mean sacrificing a higher level of equity. Funding is also available through crowd sourcing, bank term loans, property-backed lending, asset finance, invoice finance, merchant cash advance on credit card transactions, and working capital loans.

Shift in attention

Dr Neil Garner is founder of physical-digital payment platform Thyngs, which is successfully raising funds through crowdfunding platform, Seedrs. He says: “We’ve seen first-hand that there is still appetite from investors for the start-up community. But there has been a noticeable shift in attention, as it’s those start-ups that are making a difference during Covid-19 that are catching investors’ eyes – specifically, businesses that are becoming increasingly relevant in a Covid-19 era, and are working towards helping good causes and making a tangible positive social impact.”

Craig Hewitt-Dutton, Partner at corporate finance firm LockDutton, agrees investment in start-ups continues despite Covid-19. And he reminds investors: “Obviously every investor has their own risk profile but if they were to look back at 2008, another challenging period, a large amount of the investments that they made then would have produced exceptional returns.”

You can find out more about funding options in this article by Crawford Walker.


This article is written for the St James’ Place Entrepreneurs Club newsletter. The opinions expressed by third parties are their own are not necessarily shared by St. James’s Place Wealth Management.

1. British Business Bank