Information and support
Information and support
Investment and recovery in the face of COVID-19: the facts
We know Coronavirus (COVID-19) has had an unprecedented impact on businesses of all shapes and sizes in the UK. Henry Whorwood, Head of Research at Beauhurst, shares insights into the effects of the pandemic on the UK business economy, how they as a business have adapted, as well as his predictions for the next 12 months.
1. Who are Beauhurst, what do they do, and what is your role?
Beauhurst is an online platform which tracks the UK’s fastest growing companies. We currently track around 35,000 UK high-growth and ambitious businesses. These businesses are identified as meeting one or more of a handful of triggers including:
- Any company raising any amount of equity – tracking begins from when a business raises £10K from friends and family, through to when they receive £200,000,000 from Sequoia Capital, for example.
- Companies who receive innovation grants from Innovate UK, Horizon 2020, the FP7 or another EU innovation programme.
- Those who spin out of university
- Those who undergo an MBO
- If it’s evident from business financials that the company is growing organically at a significant rate
Once a company hits one of these triggers, we start tracking them. Our research team creates a profile on the company, bringing together all relevant information (management team, investment history, where offices are etc). This data is then kept up to date on our platform which enables us to track the company as it grows through to exit, or unfortunately in some cases where the company ceases.
The platform is used by venture capitalists, banks, accountants, lawyers and indeed the British Business Bank who use it to find high-growth companies to work with or monitor deal volumes etc.
In terms of my role, I run the research and consultancy sector of Beauhurst, and report on aggregate numbers around a sector or region across the whole of the UK.
2. As a business yourselves, how have you adapted to COVID-19 and what have you changed?
We were able to easily adapt as we already employ a number of remote workers, so it was largely a case of scaling up. Of course, as an online platform, we have always done desk-based research so luckily everything could be done remotely.
In terms of adapting our product in response to COVID-19, our COVID-19 tracker has been key. We’ve launched this new product, which looks at each of the 35,000 companies on our platform and evaluates the nature and severity of Coronavirus’ impact on their business.
The evaluation process includes:
Step 1: Company is tagged with a variety of qualitative tags about the nature of impact (e.g. business has closed – moved to delivery service – continuing demand)
Step 2: These tags are used to calculate a score for the company which determines the severity impact. This ranges from:
- Critical – a company that is facing threat to its ability to continue to operate
- Severe – a company that has suffered serious disruption to its ability to operate
- Moderate – a company that has suffered disruption beyond convenience, but mostly able to continue operations
- Low – a company that is able to largely continue operations, but with safety measures or working from home put in place
- Potentially positive – a company that can grow its operations as a result of these circumstances
We have also rolled this out on a free trial basis with local authorities, to help them identify high-growth businesses and those that are struggling, to help support economic development and recovery in the region.
3. What trends are you seeing on the platform? Which businesses are struggling, and are there any that are thriving?
Sectors that rely highly on customer footfall and physical premises such as leisure, entertainment and retail are the most heavily impacted by the COVID-19 crisis and lockdown rules.
On the flip side, we’ve seen sectors such as educational technology, e-health and VoIP (Voiceover Internet Protocol), being positively impacted. There have also been particularly favourable results for cyber-security as well, as the pandemic has driven many to remote working, meaning companies have had to implement more robust security protocols for their distributed workforces.
In terms of business stages, 53% of high-growth companies are in an ‘at risk’ category, and 17% are facing a high level of risk, falling into the severe and critical categories. Just under a third lie within the low impact group, whilst 15% of companies may experience a positive outcome, with a new wave of customers and increased demand. So far, just 17% of high growth businesses have had to close their doors due to COVID-19.
4. What is the overall picture you are seeing in terms of investment?
Looking at the period from lockdown up to the 1st June, and comparing it to the same period in 2019, we can see that the amount that’s invested is down by about 50%. There were 350 investments in that period in 2019, and 231 in this year’s lockdown period.
There are two main reasons for these numbers. The first is the nature of the asset class – deals are still taking place, but the amount is lower both in value and volume. Longer-term spending plans will certainly have changed due to COVID-19, but with the exception of the most difficult sectors such as travel, where we are seeing deals revoked completely, in most cases it’s a case of a modifying the pre-COVID-19 spending plans. For example, not moving to the bigger office you had been planning for this year.
Secondly, while there’s a lot of money in the market it’s being used in other ways.
Over the last few years, VCs (Venture Capitalists) have raised more money than ever before. That money is out there and needs a place where it can be usefully deployed, grown and make a return. Because of this, many VCs are choosing to invest in their current portfolios, rather than early-stage businesses and following the maturity and growth journey of those portfolio clients.
5. With this in mind, what would your advice be for early-stage businesses looking for investment?
My advice would be to carry on the conversations you’ve been having with VCs. Yes, some will still be focusing on their existing portfolios, but others will now be turning their attention to new investments.
Look at your pitch deck and make sure what you’re saying about your business and your long-term plan is still relevant and appealing to VCs currently. They don’t want a pitch that’s anchored to the old world, where the money is needed to take the business through this difficult time. Highlight what changes you are making.
6. What are your predictions for the next 12 months?
In terms of the high-growth businesses, particularly in their earlier stages, it’s a resilient part of the UK business population and I think most will get back on their feet fairly quickly. The difficulties we will see in the next 6 months will be for the larger companies who have furloughed a large proportion of their workforce and will need to build up from that again.
In fact, the UK’s scale-up businesses are especially vulnerable with almost a quarter (22%) already at severe or critical risk and a further 43% at moderate risk.
For earlier-stage tech businesses, a lot of them have been potentially positively impacted as working from home is relatively easy and some may have seen increases in demand.