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SoftBank contemplating private credit fund for UK tech start ups

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Following a turbulent year for the startup ecosystem, SoftBank – the Japanese investment holding company – is exploring the option of launching a private credit strategy that offers debt or debt-like structured funding to late-stage tech start-ups.

The potential financing scheme would be coming at a pivotal time for the UK’s tech ecosystem, which continues to battle the consequences of rising interest rates and the collapse of Silicon Valley Bank (SVB).

SoftBank’s fund will aim to offer their portfolio clients, as well as other startups, liquidity options following a detrimental chain of events – such as the collapse of SVB, a weakening IPO market, and a slow VC funding environment. This comes amidst the valuation decline of multiple start-ups as a result of the macroeconomic challenges faced over the past year.

According to Pitchbook, fintech company Klarna experienced a dramatic decrease in valuation from $45.6 billion down to $6.7 billion. Additionally, social news aggregator Flipboard saw its post-valuation drop by $825 million when it raised $25 million. As a result of falling valuations amongst start-ups, there has been an increasing need to help these firms manage crises.

“The uncertainty of the economic climate has had a drastic impact on the sector, we have seen the collapse of SVB, Tech Nation, and Britishvolt – to name a few – which has caused anxiety amongst not only startup founders, but investors who have become much more risk-averse during these times,” said Claire Trachet, the CEO of a UK-based tech sector growth accelerator. ”

“The funding that is being proposed is necessary to help get these start-ups off the ground and secure the UK’s title not only as the top contender within Europe but as one of the top three contenders in the world,” Trachet added. “In addition to this, we need to start seeing the government supporting the sector through investment schemes to help these businesses reach their potential without solely relying on third-party funds.”

Why the UK tech sector looks well-positioned

The potential plan could be a sign of optimism for not only the startup ecosystem, but Britain’s status as a tech powerhouse.

According to DealRoom, the UK remains Europe’s leading startup ecosystem, having raised $30bn in 2022, double the funding of any other European country.

Further data from DealRoom shows that the UK’s tech industry is projected to reach a value of $2.6 trillion over the next decade based on its current trajectory, and with increased support, research finds that the industry could quadruple in value to $4 trillion. In the coming year, a report by Tech Nation suggests UK tech startups and scaleups will be valued at over $1.3 trillion, a significant increase from $53.6 billion ten years ago.

The proposed funding plan acts as a step in the right direction, as the need to invest and give options to start-ups is more critical than ever, following the slowdown the sector has endured as a result of the current economic climate.

“The UK tech sector has such great potential; remaining one of the top three countries in the world for tech investment,” said Trachet. “This, combined with the projections we have seen for the next ten years, tells us that the sector has a promising future. Now, this proposed fund could be the real action needed to allow UK start-ups to flourish, giving them more options in accessing funding and helping them combat ongoing macroeconomic conditions.”

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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