Nine out of 10 growth businesses seeking investment will be forced to close within a year if investors continue to take fright.
Seventy per cent of businesses in negotiations with investors say they now expect to receive less than 40 per cent of the investment they need to grow their businesses, leaving them no option but to close, according to a new survey.
Nearly 80 per cent of those 250 growth businesses surveyed by the Enterprise Investment Scheme Association are looking to raise between £50,000 and £2m in capital.
Four out of five growth businesses say that the current disruption has impacted their plans either “a lot” or “a great deal”.
Many say that despite having term sheets signed by prospective investors, in the event funds and private investors have walked away.
The EISA is lobbying chancellor Rishi Sunak to increase the tax relief available to private investors for investments in qualifying Seed and Enterprise Investment Scheme businesses to 60 per cent, compared to the current 50 per cent for SEIS and 30 perc cent for EIS, and to extend the schemes during the coronavirus crisis to attract a further £200m of private investment into businesses which could well be Britain’s next unicorns – businesses valued at over £1bn.
Mark Brownridge, director general of the EISA, said: “Our survey shows very clearly that investors have taken fright at the current coronavirus disruption, which is resulting in many of our fast-growth businesses fearing for their future. Of the 250 businesses in the survey over half represent the health, fintech, other tech and software solutions sectors, and these the very businesses that the UK will need as we exit the current crisis.
“Nearly two thirds believe that relaxing the EIS rules would lead to an increase in equity funding, emphasising that the Government needs to act now.”
Jasper Smith, founder at entrepreneur-led Vala Capital, added: “Start-ups are hanging on by their fingernails. Millions of jobs, the core of innovation in the UK and the foundation for our economic recovery, are at significant risk. It is a potential disaster for everyone. Unless we act, there will be little to stimulate recovery.
Vala Capital has gone further, calling for the government to increase the tax breaks for investing in EIS companies to 80 per cent, which it says could raise £2bn for entrepreneurs and start-ups.