COVID-19: How 6 tech startups survived without the Future Fund – Business Insider
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- As COVID-19 swept the world early in 2020, almost one-third of seed funding deals went up in flames in the UK.
- The UK government’s multimillion-pound Future Fund – designed to help pre-profit and high-growth startups – was met with mixed reviews by Britain’s startup community due to its ‘egregious’ terms and conditions.
- Business Insider asked six emerging UK startups on how they weathered the storm of COVID-19 without help from the Future Fund.
- Founders shared their stories of personal sacrifice and triumph – from one who sold their home to another who completely transformed their business model.
- Visit Business Insider’s homepage for more stories.
The COVID-19 pandemic sparked a wave of panic among investors in the early months of 2020, with many investors fleeing early-stage startup deals.
By March, almost one-third of investors had pulled out of UK seed funding deals amid fears that the pandemic was about to trigger a global recession, according to data from SeedLegals.
In an effort to save Britain’s burgeoning tech scene from going under, Chancellor Rishi Sunak devised a GBP250 million “Future Fund”, managed by the state-funded British Business Bank, and designed to save promising startups from the brink of collapse.
The scheme has handed out some GBP588.8 million ($700 million) in assistance to date, exceeding its original target, across 590 companies. But in spite of Sunak’s best intentions, some founders attacked the scheme’s “egregious terms”, and warned that it risked excluding already-marginalized founders from disadvantaged backgrounds.
Business Insider spoke to six UK startup founders that were forced to endure the pandemic without support from the Future Future. They shared experiences shot with tough calls, personal sacrifices, and determination.
Read their stories below:
Soccer startup Flair revamped its entire business model to stay alive
Since launching in September 2018, “Flair Football”, as it was previously known, had attracted more than 25,000 young soccer players to its app, where they could create profiles, keep track of match outcomes, and swap skills.
But when Prime Minister Boris Johnson instituted a nationwide lockdown in March, outdoor sport was brought to a standstill – and Flair with it.
“The pandemic caught everyone off guard to some extent, but because our app relied on kids playing outdoor sport, we were hit particularly hard,” cofounder and CEO Nii Cleland told Business Insider.
With user numbers tanking and no end in sight, Cleland and the rest of Flair’s top team opted for a radical change in direction: shutting down the app and transforming the company from a sports platform to social enterprise, focused on representing young people.
Speaking about the decision, Cleland said: “We spoke to our board members and we were just completely honest. We put together a pitch where we pitted our current proposition versus the new one, and asked: ‘Who wants to stick with us?’
“You just have to be completely honest with yourself. Looking at the current situation, you have to think: ‘Would I try and start my company today, in this climate?’ If the answer’s no, it probably means you should do something else.”
Flair already has a number of partnerships with schools across the UK in place, and will start by surveying students and better understand their social and educational needs under COVID-19.
Asked about the Future Fund, Cleland said: “It was one of those things where…they couldn’t save every startup. They had to put some criteria in place, and in the end, it just didn’t make sense for us to pursue it.
“I mean, we furloughed our employees, and that’s a form of support in itself, we were really grateful for that. It bought us a lot of time.”
Farmstand’s CEO cut costs by shutting down its bricks-and-mortar operation
Since launching in 2016, plant-powered cloud catering startup Farmstand had raised more than $7 million in funding from the likes of Kindred Capital and Bray Capital.
Founded by serial entrepreneur Steven Novick, the firm boasted around 60 employees at its height – but was cut down to just 10 workers under COVID-19.
Under normal circumstances, Farmstand operated a “showroom” in Covent Garden, a popular London tourist destination, but Novick took the decision to divest from all its bricks-and-mortar operations and move the business entirely online in mid-March.
“We were totally shut down for three months,” he said. “To be candid, I sold my home and put the money straight back into the business.”
Months after selling his stake in a plush Primrose Hill property, where he had lived for the better part of 14 years, Farmstand was finally able to resume operations in July, distributing plant-powered, sustainable meals to outdoor markets en masse.
Asked about the Future Fund, he said there had been a “serious lack of communication” on the part of the government, and accused officials of “not caring about small businesses.”
A spokesman for the British Business Bank said “wherever possible [it] worked to provide a timely and clear explanation as to why applications did not meet the published criteria.”
In the past few weeks, Farmstand has crowdfunded more than GBP900,000 (or $1.1 million) on Seedrs – exceeding its target within the first two days – and has weeks of fundraising left to go.
“We’ve already signed a number of 12-month contracts with clients,” Novick said. “And we expect the next deal to tip us over into profitability.”
BYP – the online network for Black professionals – crowdfunded more than $1 million
With more than 40,000 members across 65 countries, BYP is the leading networking platform for Black professionals worldwide.
Despite its global presence, founder and CEO Kike Oniwinde was told BYP was ineligible for Future Fund support because it hadn’t raised GBP250,000 before April 19.
At the time of writing, BYP had successfully crowdfunded more than GBP820,000 – more than triple the required sum – on Seedrs, but remained ineligible because it wasn’t raised prior to that date.
“It doesn’t make a lot of sense,” Oniwinde told Business Insider. “I was disqualified straightaway because I hadn’t raised the money before this arbitrary deadline, even though we’ve now got close to a million in our pocket.
“We know we have issues with Black founders accessing investment in this country, so I was disappointed to see more thought hadn’t been put into how they would tackle that.
“But to be honest, we’re used to it … It’s like ‘OK whatever, we’ve been here before’. We just cracked on.”
A spokesperson for the British Business Bank told Business Insider that 64% of all funding granted had gone to startups with either BAME-only or mixed ethnicity senior management teams.
Insect farming startup Entocycle ditched its Series A round – but kept on raising funds
Entocycle, the insect farming startup working to make protein production more sustainable, is a Y Combinator alum and previously raised more than $3 million in funding.
But because that funding had come in the form of convertible loans and other means, rather than equity, the firm couldn’t apply for Future Fund support.
“Pretty much all YC companies would have missed out on the Fund under those terms,” said founder and CEO Keiran Whitaker.
“The scheme felt very piecemeal,” he added. “So many cutting-edge companies wouldn’t have been able to access this kind of support, despite being the best in their fields.”
With a nationwide lockdown preventing employees from traveling to France and tending to their insect colonies, Whitaker decided to put the brakes on their ongoing Series A funding round.
“We kept fundraising but switched to a ‘pre-Series A’ round, instead,” Whitaker told Business Insider, adding the company was set to close around $2 million in new investments.
“We managed to weather the storm, but we could definitely have done with that government support at the height of the crisis.”
Tutoring network startup Sophia rode the edtech boom under lockdown
Recent data shows the edtech sector has been booming under lockdown, with the number of investments in the sector up 1,700% in the UK, according to SeedLegals.
Tutoring network startup Sophia – cofounded by husband and wife team Melissa McBride, a former headteacher, and Dan Turner, a hedge fund manager – rode that wave, and has thus far crowdfunded more than GBP500,000 of investment.
“We’ve been really lucky. Now felt like the right time to supercharge the app,” Turner told Business Insider.
He added that although Sophia has seen more than GBP250,000 of investment in the past, the firm remained ineligible because it had come from their own pockets rather than coming from external backers.
“It’s been good because, fundamentally, I think parents are just much more open to the idea of online learning than they ever would have been before.”
With business booming, the four-person startup has plans for expansion, and hopes to hire a new chief marketer in the coming months.