Whether to survive, or to continue with existing plans, many suppliers have needed funding in the crisis. With investors spooked, how have they fared?

Talk about a crisis of confidence. Until March, the food and drink industry was a hive of activity for investment. Its reputation as an accessible sector – and one that offered plenty of excitement – meant funding was always readily available. Then the pandemic hit. Suddenly nothing – not even the stuff flying off the shelves at the peak of panic buying – was considered a safe bet. 

So what’s happened to investment? How are small, privately owned suppliers securing funding – either to stay afloat or to continue with existing expansion plans? And what hurdles have been encountered?


At a glance: how UK business has dealt with the pandemic


Predicted cost of the pandemic to the UK [IMF]


Funds approved under the Bounce Back loan scheme* 


Funds approved under the Coronavirus Business Interruption Loand Scheme


Funds approved under the future fund scheme*

1 in 7

SME owners expecting to dip into their own pockets to save their businesses 

* gov.co.uk 21 June 2020


With stock markets crashing, and the food chain asymmetrically destabilised by the foodservice lockdown, investors of all kinds understandably got the jitters. 

Crowdfunding sites like Crowdcube and Seedrs saw an immediate 50% drop-off in activity. SMEs that were used to raising cash every few months, a tried-and-tested means of scaling up their operations, suddenly had to switch tack. “The world of investment was turned on its head,” says Justine Moldenhauer, head of YF Funding, which helps challenger brands secure funds.

The drop-off has been even more extreme among large dealmakers. “We had the best pipeline ever going into the crisis. And the truck basically drove straight into the ditch,” says a leading corporate finance expert. The number of deals in the year to date has halved year on year, from 35 to 17, according to Mergermarket. 

Adds Alantra director Charles Lanceley: “A lot of the deal activity is driven by private equity, which relies on debt financing. As Covid hit, debt funds were diverted from new lending, to portfolio management – with drastic firefighting efforts required for businesses exposed to high street retail, travel and generally anything viewed as discretionary consumer spend. As a result, there are were only a fraction of the classic ‘mid market’ type deals in Q2, and I don’t expect to see many in Q3.” 

 “We had the best pipeline ever going into the crisis. And the truck basically drove straight into the ditch”

So “what cash there is”, says Matthew Cushen, co-founder of Worth Capital, is largely going to ‘follow-on’ investments, with on-trend businesses including Gousto, All Plants and Meatless Farms, all able to secure top-up deals.

In the melee, the likes of KPMG and PwC have set up specialist teams that combine M&A and restructuring experts. 

“Even the strongest-performing businesses across the market have been facing short-term liquidity issues caused by the sudden and fundamental changes to the operating environment,” says Rob Baxter, KMPG corporate finance partner. 

The importance of tax-efficient schemes to incentivise and coax investors into action has also played a major role in getting cash to companies. Rich Goldsmith, founder of drinks brand Moju, has seen angel investors step into the fold to help in the wake of the crisis. 

“The SEIS and EIS schemes have been so crucial in the past three months to get money to businesses. It continues to be a real strong pillar of the funding eco-system in the UK and is something we, as a country, should be proud of. It has continued to facilitate angel investment at a critical time for smaller companies.” 

Cushen also notes a big difference between angel investors and investment funds. Funds that rely on wealth managers and financial advisors are still facing a “bit of a bottleneck”. 

“Not least because financial advisors and wealth managers are still dealing with the drop in major equity portfolios, so they want to understand the context within which a company finds itself and re-establish the appropriate levels of funding, risk, potential upsides and valuation,” he explains. On the flip side, individual investors have started to look at the market to rediscover valuable propositions, Cushen notes.

YF Funding’s Moldenhauer has also seen “investors now starting to re-emerge and look at opportunities – though in terms of writing a cheque, I haven’t seen much evidence that things are back to normal at the smaller end or indeed the larger end of the market.” 

That explains why crowdfunding platforms are rediscovering their mojo. Despite a drop in activity at the start of the crisis, both Seedrs and Crowdcube say things reverted to normal in a matter of weeks. 

Seedrs even had a couple of “bumper weeks” when sustainable paper product brand Cheeky Panda – a proven and popular funding brand prior to Covid-19 – came on to the platform. “Investor appetite on the platform is as usual,” reports campaign manager Scott Simpkin. “Not better than normal, but normal. So the bottom line is good investors are going to realise there are good opportunities in this climate.” Simpkin adds that the initial decline was actually driven by brands. Many came off the platform early amid worries investors would pull out from their commitments.

As to Crowdcube, chief commercial officer Matt Cooper says its funding rate is now higher than the same time last year. “Because we represent a decentralised pool of capital, we remain a good option for businesses to raise through this continued pandemic as we haven’t seen the contraction and slowdown the institutional end of the market has suffered,” he argues. 

If a fundraise is to save a business, John Stapleton, entrepreneur and co-founder of accelerator platformMission Ventures urges caution. He has warned a few struggling businesses against trying to raise cash. “The best time to raise money – no matter what stage your business is at – is when you have momentum and the one thing these people don’t have right now is momentum,” he explains.

The tricky environment risks businesses being undervalued. “There are a lot of investors out there looking for a deal because they sense an opportunity to negotiate on valuations,” he says. 

“But entrepreneurs are arguing that coronavirus is just a short-term setback, that their business is robust, and the valuation should be considered as if nothing had happened. Of course, neither is true and there are lots of deals that are not happening because of this valuation problem.” So rather than seeking funds now, he advises businesses to conserve enough cash to get past the crisis, which should help restore investor confidence. 

Government funds

That’s not always possible, of course. So many smaller businesses have tried to avail themselves of government funding schemes. There are three options available: the Coronavirus Business Interruption Loan Scheme, Bounce Back Loans and Future Fund. But all come with stipulations. The first two options require the business to have generated a certain amount of revenue, and the third requires equity of between £125,000 and £5m. 

It can be tricky to secure: only a fraction of applications have been successful, and one in seven SME owners have had to rely on personal savings to keep their businesses afloat because they fail to qualify, according to research from Nucleus Commercial Finance.

“In terms of government help, very little has made its way to high-growth businesses,” adds a City dealmaker. “If you are not in a position where you can service debt because you are not profitable yet or just in growth phase, it becomes more difficult to secure new debt. That has been a real challenge for a lot of brands. There was a real scramble when it all hit to find out how to fund your business. But many have had to look elsewhere. 

A relatively new funding avenue in the UK that is likely to become more relevant in the coming months and years for e-commerce brands is revenue-based financing. “They lend money to you based on future revenues, and you pay it back based on revenue share with a bit of interest on top,” says the dealmaker. “You’re going to see a lot more of this form of funding in the UK as e-commerce grows, as there is no equity given away, so it is not dilutive.” 


The other obvious option is the most old-fashioned one: commercial lenders. Banks are offering both new loans and flexibility on existing arrangements. Lloyd’s global head of food, drink & leisure James Schofield says the bank has committed over £6bn in support, including help under government schemes as well as over 47,000 fee-free overdrafts, interest and capital repayment holidays and deferred payments.

Overall, though, food and drink clients seem to be reluctant to go down the loan route. NatWest head of retail and leisure David Scott reports a drop in corporate lending requests as customers focus internally to preserve liquidity. Allan Wilkinson, head of Agrifoods at HSBC UK, has also noticed lighter than usual corporate lending. That is partly down to “the strength of cashflow through the food retail supply chain”. 

“We have seen more efficient use of working capital and many suppliers have been paid earlier,” he adds. Plus, “the uptick we’ve seen in shopping in supermarkets has been a major contributing factor in the industry not needing a lot of extra debt at the moment” Wilkinson explains. 

And this is the takeaway for food and drink businesses. Although funding has become more challenging, there are still deals to be done. 

For Worth Capital’s Cushen, it’s all about showing investors you have identified and managed the risk ahead. “This has become very important in the context of the pandemic,” he says.

Seedrs’ Simpkin agrees businesses should be prepared to address the impact of coronavirus. “No investor is going to put money in the business unless they know how it has affected your business and what it is likely to bring in the future.” Essentially, it’s about turning a crisis of confidence into a far more positive sentiment: confidence in a crisis.


Five investment that secured funding in lockdown 

GoustoRebrand-Unboxing_alexa app

GoustoRebrand-Unboxing_alexa app

Private equity: Gousto

The coronavirus crisis did not dampen Gousto’s attractiveness to its investors with the DTC recipe kits supplier netting a massive £33m from existing backers during the pandemic – including Perwyn, BGF, MMC Ventures and fitness guru Joe Wicks. Gousto, which has so far raised over £130m, reported an “extreme jump” in sales during lockdown, as people who had never tried its services looked for new tasty recipes to trial at home.

Mr lee Family Shot

Crowdfunding: Mr Lee’s

Premium pot noodle maker Mr Lee’s Pure Foods raised an extra £1.7m from Seedrs to fund a scale-up of the business, including an upcoming launch into the US. The campaign had been planned “well before” the global coronavirus crisis began, says founder and CEO Damien Lee, and it wanted to press ahead despite the arrival of the pandemic. However, the company had to lower its initial target due to the resulting uncertainty in the market. 


Loan: Halfpenny Green

South Staffordshire wine producer and retailer Halfpenny Green Wine Estate secured a £180k funding packaged from Lloyds Bank, including a six-month capital repayment holiday. Through the pandemic, Halfpenny has had to adjust to the forced closure of its on-site restaurant and tearoom, but has simultaneously recorded a surge in demand for take-home consumption of its wines. The funding will enable the business to manage demand while continuing to meet overheads.


Angel investment: Tonic Health

The pandemic actually made it easier for vitamin drinks startup Tonic Health to secure funding. After all, the onset of coronavirus saw sales of its high-dose drink, containing vitamin D, vitamin C and zinc, jump 1,000% in March as consumers looked for ways to increase immunity. Those stats enabled it to close a £600k private investment round, 50% more than its original £400k target, without needing to turn to the crowd as originally planned.

Calico Cottage

CBILS: Calico Cottage 

Cambridgeshire chocolate producer Calico Cottage was one of the businesses able to secure a six-figure funding package under the government’s Coronavirus Business Interruption Loan Scheme (CBILS). The funding was arranged with Lloyds Bank alongside a repayment holiday arrangement to support cashflow levels during the pandemic. Because of this, the business has been able to continue operating throughout the lockdown period and start taking in future orders.