MD2636 Pay It Forward London – Match Funding

Pay It Forward London (approved under cover of DD2475) launched on 20 April 2020 as an initiative delivered alongside Crowdfunder LTD to enable small businesses in London to pre-sell future goods and services, helping them secure cashflow through difficult trading conditions. Londoners can pledge funds to support their favourite local businesses during this crisis, for example by paying upfront for future meals, haircuts, or tickets to events to be provided in the future. Crowdfunder LTD, the UK’s largest crowdfunding platform, has offered to: provide this service to allow businesses and supportive members of the public with 0% fees on the funding campaigns; and will cover the transaction costs itself.

Since the launch of Pay It Forward London, data from the platform has shown that hundreds of local businesses have signed up and have raised over £250,000 with the support of over 4,000 Londoners. Across the whole of London – including campaigns that have originated on Crowdfunder but have been migrated to Pay It Forward London to benefit from our audience reach – over £1,500,000 has been raised by over 280 businesses across London. There is therefore, clearly significant appetite amongst both business and the public for this type of fundraising model, with projects raising thousands from the public in every area of the city.

Whilst some small businesses begin to open their doors in the coming weeks, many businesses will continue to struggle with cashflow, with many only able to trade at a fraction of previous capacity, and many such as theatres and music venues are not yet able to reopen. Providing match funding would help small businesses in London to manage cashflow, support them to re-open safely and recover from financial hardship caused by the ongoing Covid-19 crisis.

Match funding would be provided on the basis that eligible recipients use the funding to meet costs of business digitisation and transformation, as many businesses have been forced to transition to digital models of delivery and adapt their business models to meet government safety guidelines. This would include, for example, measures to make their businesses Covid-secure, enabling safe re-opening and socially-distant trading – such as investment in Perspex screens, contactless payment technologies or slot-booking technologies. It would also include access to training on digital marketing and the adoption of tried and tested technologies such as e-commerce and customer relationship management. This will enable businesses to adapt, diversify and up-skill their workplaces to continue trading and to do so safely.

The Mayor would match fund every pound raised by an eligible business, up to a maximum of £5,000, and could therefore, benefit around 200 SMEs in key sectors reliant on physical trading affected by Covid-19 restrictions such as retail, hospitality, leisure, tourism, travel, creative and arts, entertainment and recreation, personal service, and health and fitness.

The match funding would be delivered through Crowdfunder LTD and a contract with Crowdfunder will be entered into in order to govern the holding and distribution of the monies via a third party escrow account. Crowdfunder will not charge the GLA for the build and hosting of the match fund page and will contribute around £25,000 in kind in the form of waived transaction fees and set up costs.

To receive match funding, the businesses will need to reach 100% of their campaign target, with the match funding not exceeding 50% of the total raise.

Working with Crowdfunder Ltd, officers will put in place robust eligibility criteria for the match funding and verification/due diligence methods: including mandating submission of receipts and other relevant documents by businesses.

The proposal is for the GLA to match fund every pound raised by an eligible business, up to a maximum of £5,000 per business. The objectives of this are:

• to increase the number of businesses signing up to the platform;
• to increase the number of members of the public who are pledging;
• to increase the amounts being pledged; and
• to incentivise participating businesses to invest in tools and processes which will make them (a) more digitally-enabled, and (b) safer, socially-distant spaces to trade once reopened.

Outputs required to administer the scheme would include:

• crowdfunder to design, build and host the Pay it Forward Match Fund Page on london.gov.uk/payitforward, explaining the purpose of the match fund and the project criteria linking to a digital application;
• a ‘menu’ of options for businesses, covering cloud computing, CRM, cybersecurity, hardware options, equipment and others to spend some of the match funding on;
• a payment solution designed for the distribution of funds, holding public money in escrow, to be released only when GLA officers are satisfied that conditions have been met;
• online dashboard set up to connect with businesses and view applications; and
• a coaching programme of online courses in place to provide businesses with access to resources to build their digital skills and capacity.

Key outcomes include:

• around 200 businesses receiving up to £5,000 to support digitisation, diversification and upskilling;
• more widespread investment in, and adoption of, productivity-enhancing technology and e-commerce solutions; and
• business continuation supported through the purchase of equipment that will allow businesses to continue to trade or re-open.

The delivery of the match fund will build on the infrastructure already in place on Pay It Forward and Crowdfunder have offered to waive its fees, not charging for the transaction costs and other costs for setting up and promoting the fund. Members of the public have the option to ‘tip’ Crowdfunder which is entirely opt-in and voluntary, enabling Crowdfunder to marginally cover the set up costs and other waived fees, which is not expected to exceed the EU de minimis aid threshold of €200,000. Therefore, the £1 million funding will be used as set out below:

Under Section 149 of the Equality Act 2010, as a public authority, the Mayor of London must have due regard to the need to eliminate unlawful discrimination, harassment and victimisation as well as to advance equality of opportunity and foster good relations between people who have a protected characteristic and those who do not.

The project will be promoted through a marketing campaign, which will reflect the diversity of London, and will seek to actively promote good relations between people of different characteristics. Moreover, by reaching out through peer-to-peer networks, as well as through London’s Business Improvement Districts and local authorities, we will ensure that the opportunity to fund raise reaches business founders across the whole of the city, including those who are not typically able to access this kind of funding.

There is a significant risk that minority groups will be disproportionately impacted by the current crisis and many will face specific barriers to accessing support available from HM Government. Pay It Forward London, as part of the London Growth Hub support offer, will work with its delivery partners to ensure a significant level of engagement with community and faith groups in order to access harder to reach communities to avoid discrimination and make sure there is equality of opportunity. We will also use the Growth Hub’s extensive contacts within minority and women owned business networks to disseminate messaging and support available to these communities. This will include translation of materials and use of diverse communication channels.

As a condition of application to the fund we will conduct a baseline and end line survey, taking place before and after the fundraising. In addition to capturing insights into the funding from a business perspective, it will also gather insights into the experience and needs of business founders from an equality and diversity perspective. The findings will be used to inform future SME-facing policy.

Risk register

Links to Mayoral strategies and priorities

The Mayor has been clear over his concerns on the impact of Covid-19 on businesses if appropriate funding and support is not in place and continues to lobby the Government during this crisis. Many businesses cannot access the Government’s support schemes because of the way they have been set up, and others are struggling even to access funding for which they are eligible. This proposal therefore forms a key part of the Mayor’s response to supporting London’s economy through the current crisis, of which the LEAP and Growth Hub are vital elements and trusted channels of support.

The current crisis calls for support to help businesses get back on their feet, and to digitise both the front and back ends of their business. This proposal also responds to the Government’s Industrial Strategy, which called on all LEPs to do more to boost business productivity. The role of technology adoption and business management practices in enhancing productivity across London’s SME base is expected to form a key tenet of London’s forthcoming industrial strategy, and the Mayor’s wider approach to economic recovery, which will shape LEAP’s future objectives and funding streams.

The objectives and outcomes of this proposed intervention are fully aligned with the commitment set out in the Mayor’s Economic Development Strategy to support businesses to invest in new technologies across the ‘Everyday Economy’ in sectors such as retail, hospitality and tourism.

Due diligence

Due Diligence on businesses which may be and are in receipt of funding will be undertaken in several stages and in line with standard GLA practice.

Verification of the businesses would be undertaken when the application is submitted. This will involve for example, cross-checking details with companies house and basic web research.

In order to prevent a business from match funding with their own money, the match from the public must come from at least 30 individuals. Moreover, there will be limits on how much any one individual can contribute as a percentage of the qualifying total.

Before any funding is released, businesses will need to submit receipts or other documentation as proof of spend. This would help guard against any risk that the funds would be used for other purposes.

Businesses would also need to demonstrate through their application that they have the ability and resources to undertake this activity.

Additional staff capacity will be needed to undertake this work, either through the creation and recruitment of a new post, external consultancy support or internal staffing.

Governance

The fund will be distributed to businesses by through a third-party payment provider (engaged by Crowdfunder and the transaction and escrow costs for which will be covered by Crowdfunder). The GLA would create an escrow ‘wallet’ with provider MangoPay. Funds will be paid into the wallet in lump sums at agreed points in time, and will remain in GLA’s beneficial ownership until paid out to the recipients The GLA would not need to enter into contract with MangoPay, only agreeing to their terms and conditions as a user. No money will be released to the companies until the GLA is satisfied that they have met and evidenced the necessary conditions. In order to receive the funds, recipients would also need to set up a ‘wallet’ which enables additional risk mitigation as MangoPay undertake due diligence and anti-fraud checks.

It can be confirmed that no conflicts of interest were noted in the drafting and clearance of this decision.

Permission is being sought to provide funding of up to £1m to support London’s sole traders and SME’s following the trading pressures created by Covid-19.

The aim is to help the city approach economic recovery by providing financial support, in the form of match funds, to aid businesses in keeping afloat and alleviate cashflow strains

With demand anticipated to be around 200 entities, businesses can apply for up to a maximum investment of £5,000 which can be used to adopt at-a-distance business models, digitalisation and transformation.

Crowdfunder Ltd will distribute the £916,000 on behalf of the GLA via a secure escrow account. The GLA will have full access to this account and will authorise all payments.

As the nature of these investments requires payment to be made in advance, Crowdfunder Ltd alongside the GLA will carry out appropriate vetting and due diligence checks before funds are released. Furthermore, the proposed Delivery Officer, as set out in the budget table above in section 2.4, will be responsible for verifying expenditure by collating receipts and invoices retrospectively.

The budget for this proposal has been identified within the Skills for Londoners revenue programme budget in which there is circa £1.4m which has not been allocated to specific projects. Therefore, there is sufficient budget headroom to permit this proposal.

Due to the amount proposed, this will require drawing upon future funds, specifically 2023-24, to enable the expenditure to take place this financial year. The below table shows the current and revised budget for the Skills for Londoners programme and the Pay It Forward proposal:

^* A separate decision is being considered for approval relating to the London Resilience Fund (MD2664) in which £400,000 has been requested from the unallocated Skills for Londoners programme. This figure is based upon the assumption this has been approved.

This will have a net nil financial impact on the GLA’s budget as the funding source for this programme stems from MHCLG as part of the Growth Deal funding which the Authority has taken receipt of. As such, because the unallocated funds do not belong to the Authority they cannot be offered as savings and must be spent as outlined in the Growth Deal agreement.

Growth Deal funds allow expenditure to take place at any time across a fixed period and permits repurposing towards projects which create jobs, support businesses and encourage growth. To enable this, permission must first be sought from the LEAP investment committee. In this instance it was obtained on 24^th June 2020.

It is important to note that this funding is a fixed amount and cannot be supplemented, therefore drawing upon it early will result in the diminished availability in 2023-24 as set out in the table above.

The foregoing sections of this report indicate that:

• the decisions requested of the Mayor concern the exercise of the GLA’s general powers, falling within the GLA’s statutory powers to do such things considered to further or which are facilitative of, conducive or incidental to the promotion of economic development and wealth creation in Greater London; and
• in formulating the proposals in respect of which a decision is sought officers have complied with the Authority’s related statutory duties to:
• pay due regard to the principle that there should be equality of opportunity for all people;
• consider how the proposals will promote the improvement of health of persons, health inequalities between persons and to contribute towards the achievement of sustainable development in the United Kingdom; and
• consult with appropriate bodies.

In taking the decisions requested, the Mayor must have due regard to the Public Sector Equality Duty - namely the need to eliminate discrimination, harassment, victimisation and any other conduct prohibited by the Equality Act 2010, and to advance equality of opportunity and foster good relations between persons who share a relevant protected characteristic (race, disability, gender, age, sexual orientation, religion) and persons who do not share it (section 149 of the Equality Act 2010). To this end, the Mayor should have particular regard to section 3 (above) of this report.

As officers have indicated that Crowdfunder Ltd is not charging the GLA for the services to be provided, nor any prospective recipient of GLA funding any transaction or other charge the services need not be procured competitively. Whilst it is understood that members of the public may, at their sole discretion, choose to provide Crowdfunder LTD with “tips” to be used, if secured, to meet the costs of service provision, officers have indicated that those costs are unlikely to exceed a sum below the de minimis threshold for State aid purposes (€200,000).

Should the Mayor be minded to make the decision sought officers must ensure that:

• the GLA and Crowdfunder LTD enter into and execute a contract for the provision of the relevant services which protects the GLA’s interests including setting out the detail of the eligibility criteria, due diligence, verification and monitoring mechanisms and funding terms required to ensure that funding can be and is awarded for the purposes of the scheme; and
• to the extent that expenditure is to be incurred on the purchase of services or supplies for delivery of the proposed scheme are procured by TfL Commercial and in accordance with the GLA’s Contracts and Funding Code and the GLA and service providers/suppliers enter into and execute contracts for the provision of the same before the commencement of such services and supplies; and
• all GLA HR protocols are followed and approvals obtained concerning the establishment of any new posts.