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Are Startup loans pointing in the right direction?
Posted by Adam Grunwerg on 24 Jan 2013
Adam Grunwerg, a young online entrepreneur and director of ARG Media, shares his thoughts on the Government's Startup Loans scheme.
The Prime Minister officially announced the expansion of the startup loans scheme from 18-24 up to 30 year-olds at the beginning of this year. The scheme has been launched to envelop a new entrepreneurial nation, and as Lord Young put it, “to help the 1 million young people out of work”.
Promoting entrepreneurism in this country is great, and the intentions behind helping young people start their own business and lower youth unemployment is a commendable policy. I’m honestly all for it. However, as a young entrepreneur, I can’t help but feel very skeptic about the current initiative and whether it will really take off.
First of all, lets look at the figures. Lord Young, the so-called “Godather of Startup Loans”, stated that the scheme should benefit tens of thousands of young businesses. However, in the last 6 months since it launched, only 600 businesses have been awarded a startup loan, out of a total of 3,000 applications. In order for the Government to lend a planned total of £112 million by 2015, almost 45,000 entrepreneurs will have to take out the loan. The government is clearly behind schedule and failing to find suitable young businesses to invest in, which is presumably why they have expanded the scheme from 18-24 up to 30 year-olds.
Secondly, I have my doubts about how effective the scheme can be. Anyone that has ever started a business knows that one of the most important things is having the infrastructure and resources for businesses to blossom. The Google Tech Campus in London is a perfect example. It provides free Wi-Fi and workspace to its members as well as weekly mentoring programs, speaker series, networking events and more. It’s the perfect environment to breed young, tech savvy entrepreneurs and developers.
The Government however, is simply handing out £2,500, hooking you up with a mentor, and crossing their fingers that something will come of it. The lacklustre management of the scheme can also be seen by the fact the even the official starter kit website for startup loans hasn’t yet been updated to include 30-year-olds, weeks after the PM’s announcement.
In all honesty I’m not even sure where they plucked out the £2,500 figure. Every VC knows that different businesses require different starting capital depending on their resources, development stage, location and technology. To throw £2,500 at a startup business might fund them for a month, maybe more, but in my opinion it’s not enough to provide the catalyst for a myriad of business ideas.
If you look at the EU’s Action Plan for Boosting Entrepreneurship, it includes endorsement for successful mechanisms of University-driven business creation (spin-offs) and institutions as well as embedding entrepreneurship in the school curriculum. I’ve personally already witnessed the success of originations such as Manchester University’s very own Entrepreneur’s Society in educating and funding young entrepreneurs or “gradpreneurs”, as they’re now known.
It’s macroeconomic planning, which cultivates an entrepreneurial nation. You can also take a leaf from Harvard’s Business School to look at the resources, networks and the funding that they offer to their graduates for startup businesses.
Finally, by promoting startup loans to the youth, it automatically assumes there’s an entrepreneur in everyone. It’s like the Government is saying “Hey kids, here’s £2,500, let’s play Who Wants to Be an Entrepreneur”. This is an extremely dangerous strategy considering the average student graduates from University with a debt of £27,000 anyway.
In conclusion, while the startup loans scheme is a nice idea and has good intentions behind it, the Government needs to do more if it wants to have its hand in creating a new wave of British entrepreneurism in the 21st century. On my own site Investing.co.uk, I'm going to start blogging about a range of ways the Government can help young entrepreneuers with regards to tax benefits, capital gains allowances, VAT exemption and funding.