UK start-ups have raised $825 million during virus lockdown, but fewer deals are being made

Key Points
  • Funding into U.K. start-ups between March 23 and April 27 is 34% higher than it was over the same period last year. 
  • Investors are pumping more capital into their portfolio companies to ensure they have enough to see out the economic downturn.   
  • However, the total number of deals fell and many start-ups are struggling. 
The London Eye, the Big Ben clock tower and the City of London financial district are seen from the Broadway development site in central London, Britain, August 23, 2017. 
Hannah McKay | Reuters

New research suggests British start-ups have raised £663 million ($825 million) since the coronavirus lockdown began in the country, shrugging off the economic downturn in the process.

The study — carried out by workspace provider Plexal and start-up database Beauhurst — focused on funding rounds between March 23 and April 27, analyzing nearly 30,000 businesses.

It found that British start-ups raised 34% more this year than they did during the same period last year. The rise is thought to be a result of investors allocating additional funding to ensure the survival of start-ups in their portfolio.

A handful of start-ups have raised substantial rounds in the last few weeks, with digital ID verification service Onfido announcing it had raised $100 million from investors on April 15.

"Although uncertainty typically reduces investor enthusiasm, there are areas that are expected to do well and attract disproportionate attention," Onfido CEO Husayn Kassai told CNBC. "So far they seem to be infrastructure companies (payments, identity access, communications) and areas related to security and AI more broadly."

"Start-ups that are proving to be both resilient and even more relevant in an increasingly remote-access world are likely to continue to attract more investment. As well as our $100 million round, it's clear that identity is being seen as having infrastructure value with other identity companies also doing well, such as Okta, ForgeRock and Ping Identity. These will be the critical services as we establish the 'new normal' in the wake of this pandemic," he added.

While established start-ups took the bulk of the funding, some £50.2 million went to start-ups that had never raised significant rounds before.

Those focusing on fintech, AI, security, and blockchain technologies were particularly attractive to investors, according to the research. 

Jan Hammer, partner at Index Ventures, told CNBC: "We believe that entrepreneurs will be at the heart of the world's economic recovery as they find ways to address fundamental changes in the way societies live and work. It's vital that they can access the funding they need to get their ideas off the ground.

"Index has just announced $2 billion in new funds to support emerging entrepreneurs and we are continuing to invest. Most of our investments are Series As, backing companies that are only just taking off and will only emerge as large global businesses towards the later part of the decade."

While overall funding was up on the same time last year, the number of deals is widely perceived as a more accurate barometer of investor confidence. Compared to the same time last year, the number of deals is down 39% to 114.

While some start-ups have been able to raise capital, others are really struggling. Almost 1,000 small U.K firms are currently in administration (263) or liquidation (707), according to the research. 

Treasury help

The U.K. government announced a £1.25 billion rescue package for start-ups last week but there are concerns many companies will slip through the cracks.

"If we don't act now to stimulate the market and ensure funding is distributed widely and quickly, we risk a lost generation of start-ups and entrepreneurs," said Andrew Roughan, managing director of Plexal, in a statement.

"We'll be closely monitoring deal numbers, liquidations and early stage rounds in the coming weeks and months to provide an accurate lens through which to judge whether the support mechanisms are working as desired."