The UK government has been called on to provide matched funding in the form of loans to private investors to spark a resurgence in travel start-ups after the COVID-19 crisis.
Rebound Consulting, which was set up by three experienced industry executives to advise businesses on how to survive the pandemic, says current government support ignores start-ups.
The organisation says support for start-ups and angel investors will help the travel industry tap into a “bedrock” of creativity which could see the next big thing in travel emerge.
Rebound consulting was established by former colleagues of MyTravel Steve Endacott, Will Waggott, and Seamus Conlon, who all went on to successful careers in start-ups and travel corporates.
Waggott said: “As we come out of corona lockdown, many existing businesses are going to reduce in size and the country will see large scale redundancies and a major surge in unemployment.
“As usual the youth of the country may suffer the most, as they find themselves competing with a marketplace full of experienced and newly redundant workers.”
Endacott said: “Few entrepreneurs are created at birth, but start their own business because they have a great idea and often have just lost their jobs.
“Many people will be using the current lockdown period to flesh out ideas that they have been tinkering with for a while in preparation for being made redundant.”
Rebound Consulting believes that the government needs to help harvest these ideas and create conditions for a wave of new start-ups while supporting existing start-ups.
Conlon said: “Travel is one of the sectors that is likely to suffer the most from the corona lockdown and the following recession.
“However, we know we have a bedrock of creative people, who are customer focused and used to working in relatively risky businesses.
“I think we could easily see the next big thing in travel emerging in the next 18 months with the right support and funding.”
Rebound commended the UK government for doing an “excellent job” of supporting the UK business community as companies are put into hibernation.
Through the furlough scheme companies have been able to effectively close their businesses on a temporary basis while government funding pays staff 80% of their salaries up to a maximum of £2,500 per month.
The government has also enabled high street banks to issue government backed loans to companies who can show a profitable track record over the 18 months before the coronavirus outbreak.
And measures have been announced to help the self-employed. But Rebound Consulting says the “glaring gap” is assistance to start-up businesses.
Endacott said: “I have seen hundreds of start-up business and a common denominator, is that the business plan is often to lose money in the first two years whilst they reach critical mass and then make profits from year three onwards, with a hockey stick rise in profits thereafter.
“My own Holiday Taxis Group followed this path and ended up carrying seven million passengers and being sold successfully, but if it had been started in the last two years, I believe the coronavirus would have bankrupted it.
“Start-up’s, like most businesses, will be using furlough grants to stagger on for the moment, but once these grants stop many will not have the capital required to relaunch and will quickly fail, unless they can raise further funding.
“Many private investors will be looking at the predictions of a recession, as bad as the Great Recession of the 1930’s and will be hesitant to invest further unless the government reduces their risk by creating a loan fund to match their investments.”
Waggott added: “Governments, by their nature, are not well positioned to assess the quality of start ups’ management team or business plan.
“Likewise banks tend to focus their loan approvals on historic numbers rather than the typical optimism of most start up business plans.
“But angel investors, who are risking their money in the form of equity investments, are in a position to make that assessment.”
Conlon said: “Start-up’s will still need to convince private individuals to take the largest risk, with all or nothing equity investments.
“But the government start-up fund would match this investment, with a loan repayable after three years trading, paid off over a further five years.
“This type of long-term loan would allow the business to grow in the crucial early years creating wealth and jobs for the country.
“The government Coronavirus Business Interruption loans scheme is barely working for existing SMEs, it ignores start-ups completely.”