COVID-19 has impacted businesses of all sizes globally – throwing up challenges but also opportunities. This extends beyond the short-term issues of operating during a pandemic. As a result, businesses have had to fundamentally re-evaluate how they operate and their long-term goals.
Scale-ups are no exception to this. As high-growth innovative companies they should, in theory, be well placed to adapt to the new circumstances and maximise the new opportunities. However, a perennial challenge for scale-ups is access to capital.
Unsurprisingly, securing equity funding has become more challenging as a result of COVID-19, particularly for those businesses looking to secure new investors. A recent report by the ScaleUp Institute, Innovate Finance and Deloitte identified a 40% fall in the second quarter of 2020 as compared with the same period in 2019. Investors have also become more focused on ensuring that their existing portfolio companies are adequately capitalised to survive the current crisis, often also taking advantage of matched funding from the Future Fund.
Will we see a significant move from ‘defensive’ investment in existing business to investment to exploit the new opportunities? At some point, almost certainly. But as we enter the autumn with cases rising, talk of second lockdowns and with the next stage of Brexit on us, things seem as uncertain as ever. It’s going to be a brave investor who invests in the opportunities now and, if they do, they will be ensuring that any valuation is consistent with the level of risk.
If the regular channels of investment are disrupted will government help? The Chancellor has provided a broad range of business support as a result of Covid-19 but this is predominately short-term and is now starting to be withdrawn. This support might be extended but if it is, it will almost certainly be more targeted and limited. In reality, it seems unlikely that government money will fill the gap.
So, the COVID-19 landscape for scale ups is likely to be challenging. However, when investor sentiment changes, you’d hope that scale-ups who have weathered the storm will be the particularly attractive investment opportunities.
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