Tech startup 'deaths' hit record levels as gov schemes wane

More than 1,000 UK tech startups have filed for administration, liquidation or dissolution since lockdown began, according to new research released today by Plexal and Beauhurst.

Following artificially low filings between April and August, September saw a record number of filings - the highest monthly figure in 10 years - as the true impact of COVID-19 started to show.

In fact, 273 fast-growth companies filed for administration, liquidation or dissolution in September, out of a total of 1,067 since the beginning of lockdown – a 181 per cent month-on-month increase compared with August.

While government schemes such as Coronavirus Business Interruption Loan Scheme, Bounce Back Loan Scheme and the Future Fund have provided valuable support to cash-strapped early stage companies struggling to survive the economic impact of the crisis, their preservative effect is starting to diminish.

Plexal, the innovation centre and workspace established by Delancey, and Beauhurst, a database for fast-growth companies, analysed nearly 30,000 startups and high potential companies (firms that have attracted equity or venture debt funding) to understand investment activity since UK lockdown began on 23 March.

The increase in failures has been most keenly felt in two of the UK’s major regions for startup growth. As many as 388 high-growth companies based in London have filed for administration, liquidation and dissolution since the start of April, with numbers increasing from 30 to 95 between August and September (a 217 per cent rise).

Meanwhile, 48 Scottish startups filed in September, almost half (49 per cent) of the total filings since the start of April (97).

Since the UK was placed into lockdown in March, the UK’s high-growth startups have raised £5.37 billion in investment, now down by just 18 per cent compared to the same period in 2019.

However, only £458 million of this was by startups raising investment for the first time, representing a 55 per cent year-on-year decrease for first-time funding and highlighting the disparity between more mature companies and those at the earliest stages of development.

Andrew Roughan, managing director of Plexal, commented: “The government commendably offered a number of startups a lifeline at the peak of the crisis, but despite the slowly improving funding picture, we are now starting to see the pent-up effect of the pandemic on UK businesses – in particular early-stage startups.

"Government initiatives alone are not sufficient to support startups most in need of funding and cashflow in the current economic climate."

Henry Whorwood, head of research and consultancy at Beauhurst, added: “We have never seen a month with so many startup deaths as we did in September - while the number of filings has naturally grown as the number of high-growth UK businesses increases - our data clearly shows a sustained reduction in these companies filing for administration, liquidation or dissolution as a result of the government’s financial support schemes for small businesses."

Beauhurst's data analysis was based on investment activity collected by Companies House from 23 March to 12 October.

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