The number of start-up funding rounds was 36 per cent down last year compared with their 2018 peak, according to research.
Last year was the consecutive year that the number of start-up funding rounds was down.
There were 1,427 first-time seed-stage deals completed in 2020, down 17 per cent from 2019’s 1,715 – and a 36 per cent drop from the 2,055 completed in 2018.
The data also points to reductions both to the amount of money available for first-time rounds and the number of funds equipped to make such investments.
SFC Capital, which commissioned the research, has called for seed funding to be reformed with greater government investment into seed-stage funds. Otherwise, said SFC, the government’s “levelling up” and “science superpower” economic strategy will be jeopardised.
To date, the Seed Enterprise Investment Scheme (SEIS) has helped 14,921 businesses raise £5.8bn since its launch in 2012.
However, the scheme is due to be phased out in 2025.
In particular, SFC has called for the SEIS funding cap to be increased from £150,000 to £250,000 and doubling the amount investors can put in to £200,000.
SFC also called for the approvals process to be sped up and extending the scheme beyond its current 2025 shelf-life.
The financier also said public investment in early-stage companies should be increased. Although British Patient Capital and British Business Investments are active in the sector, they do comparatively little when it comes to very early-stage investing.
“Making more public money available to support the growth of innovative start-ups would back the government’s rhetoric about ‘levelling up’, ‘building back better’, and creating a ‘science superpower’,” said SFC Capital.
Stephen Page, founder and CEO of SFC Capital, said: “If SEIS dies, innovation dies; it really is that simple. The UK currently punches well above its weight on the global innovation stage, but without the required support for early-stage companies, we could tumble down the league table with innovators stifled before they even get going.
“The biggest shock is the low number of early-stage businesses seeking SEIS funding … there should be tens of thousands of companies taking advantage of SEIS every year, not less than two thousand.”