Coronavirus is forcing UK startups to make salary cuts and stall hiring processes, survey finds

The impact of Covid-19 has massively slowed the growth and productivity of SMEs.

Parisoma, a coworking space, is seen mostly empty in San Francisco, California on March 12, 2020. - Tech-savvy Silicon Valley is joining the trend of remote work and classes as people seek to contain the fast-growing disease, relying on many of the technologies invented or refined in the area. (Photo by Josh Edelson / AFP) (Photo by JOSH EDELSON/AFP via Getty Images)

The coronavirus pandemic is having a profound impact on UK startups, research by Sifted has found. The technology blog, a subsidiary of the Financial Times, surveyed 200 small to medium-sized enterprises that had between 25 and 250 employees before the outbreak began. These companies were from multiple sectors, including finance, legal services, travel, and healthcare.

The survey found that 60 per cent of respondents had renegotiated their workspace rent or are in the process of doing so – with 5.1 per cent even cancelling their tenant memberships to co-working spaces entirely.

Nearly a third – 30 per cent – of the startups have made cuts of up to 15 per cent in employees’ salaries, while 16 per cent have committed to laying off at least 10 per cent of their full-time workforce , the survey found. Twenty-six per cent have moved to use the government’s furlough scheme.

As for recruitment, 49 per cent of respondents have frozen hiring for the foreseeable future, and 32 per cent have confirmed they intend to slow their expansion plans.

More than two-thirds – 68 per cent – of startups, meanwhile, envisage that their revenue will drop by at least a quarter by the end of 2020.

The UK government appears to recognise the challenges facing startups, and unveiled plans for a “Future Fund” to help loss-making companies last week. The £250m relief package is set to launch in mid-May, and will offer loans to UK-based companies ranging from £125,000 to £5m, subject to at last equal match the funding they received from private investors.

Delivered in partnership with the British Business Bank, the chancellor Rishi Sunak has said the Future Fund’s pot will be kept “under review”, suggesting that more funds could follow later down the line.

Companies will qualify for support if they have raised at least £250,000 in equity investment from private or third-party investors in the last years.

Money from the Future Fund will come in the form of a convertible loan, meaning the UK government will take equity shares in the business when the funding converts. Interest on future fund loans will be set at 8 per cent a year, and will be payable after three years.