Every economic crisis creates a generation of battle-hardened entrepreneurs who steer their companies through the worst of times. Business owners who came of age when the dotcom bubble burst or when the banking system went into meltdown in 2008 had to learn tough lessons quickly. Today, as a global pandemic gives way to a deep recession, a new wave of company founders faces a similar challenge.

So what are the prospects for Britain’s start-ups, and will they be able to source the funding they need in the months and years to come?

Shaun Beaney of ICAEW’s Corporate Finance Faculty points out that stage one of the crisis was marked, for many, by the imperative to simply stay afloat. “For a lot of start-ups it was about survival,” he says. “Some were forced to do new things – for instance, restaurants turned themselves into takeaways. Others were lucky enough to access emergency finance.”

Government initiatives such as the furlough scheme and bounce-back loans have undoubtedly helped, but as Laura Leslie, Corporate Business Director at Liverpool-based DSG Chartered Accounts, observes, the real challenges will become apparent once the schemes fall away and borrowed money has to be repaid.

“The Bounce Back Loan Scheme enabled businesses to deal with immediate problems such as paying suppliers. But while they are 100% guaranteed by the government, businesses still have a liability. That’s not something you can hide from,” Leslie says. “The things start-ups are going to struggle with are funding and cash flow. They need to be cash planning for 12 to 18 months ahead.”

Those seeking venture capital or angel finance for the first time face a more bleak landscape. Business intelligence platform Beauhurst tracks the progress of around 35,000 start-up and scale-up companies. It found investment and deal numbers fell significantly during the lockdown.

“In the period between the start of the restrictions and 26 May, there were 231 deals compared with 350 a year earlier,” says Henry Whorwood, Beauhurst’s Head of Research and Consultancy. “That might not look too bad, but the amount invested fell from £2.3bn to £1.7bn.” So, fewer deals and a lot less money.

Companies raising equity capital for the first time suffered most. New funding fell from £374m to £53m. But that isn’t really surprising. Dr Keith Arundale, a researcher and lecturer at the International Capital Market Association Centre, points out that investing is a people business that requires face-to-face meetings. “Zoom isn’t as good,” he says.

Government help was available in the form of the Future Fund, which offered convertible loans of up to £5m – if at least matched by equity funding by commercial investors. However, the structure of the scheme favoured companies that already had a relationship with VCs or angels.

Looking to the immediate future, Whorwood says there is an appetite to invest. “Overall, 2020 might not be too bad,” he suggests. Leslie also sees cause for optimism: “It is different this time. There is still liquidity. Banks are willing to lend.”

Businesses do have more options, with new finance options coming. “There is greater diversity, including crowdfunding and peer-to-peer lending,” says Beaney. “We also have very favourable tax breaks for investment in start-ups, notably through the Seed Enterprise Investment Scheme and the Enterprise Investment Scheme.”

He cautions that businesses should take care to choose appropriate forms of finance and highlights ICAEW's and British Business Bank’s Business Finance Guide as a good place to start.

Some businesses will undoubtedly find it easier than others to raise finance and grow revenues. “If you are in leisure, travel, hospitality or retail, this is a tricky time. If you are in ecommerce or healthcare, there are more opportunities,” Arundale explains. Beaney also expects to see interest in businesses involved in education and community services.

Ultimately we have entered a different world. Funding will be available, but providers are likely to be more selective.