Last week, the UK became the latest European country to announce a fund for startups impacted by COVID-19. On April 20th, the UK government unveiled a £1.25bn fund consisting of two packages: a £500mn co-investment fund supported by the government and the private sector, as well as £750mn in grants and loans through the UK innovation agency. The UK announcement follows similar efforts by European countries as they race to protect technology innovation to support future growth.
The first round of European financial stimulus packages announced in March included temporary unemployment measures, deferments of social charges and taxes, and liquidity assistance to aid small and medium-sized businesses impacted by the crisis. But these measures were generally not accessible to research-intensive startups with little or no turnover. In response, startup ecosystems launched surveys and submitted demands for emergency support specifically for startups.
Examples of selected European government responses to these startup demands include:
France, who took the lead by pledging a €4bn package for startups consisting of bridge funding, state guarantees for loans and tax breaks in late March.
Switzerland will launch emergency aid guarantees specifically for startups, based on survey findings that a majority of startups could not access the CHF20bn liquidity assistance offered by the Swiss government.
Portugal, announced a €25mn package of startup relief measures, consisting of various incentive schemes consisting of incubation services, minimum wage packages up to ten employees, and loans.
Germany, who announced a €2bn bailout fund for startups in early April, are still in discussions as to its implementation.
Similar to ongoing debates in the US, the startup ecosystem in Europe continues to be divided over whether venture-backed startups should compete against harder-hit small businesses for taxpayer money.
While a majority of European entrepreneurs welcome a government lifeline, some are expressing caution. Toon Vanagt, a Belgian entrepreneur, describes to tech.edu that its the venture capitalists, not the taxpayers, who should be providing help to promising, but high-risk startups. He asks fellow entrepreneurs to consider the question: “How is it that your VC no longer trusts you to make revenue and offset your risk, and so now you want the government to trust you to make this revenue?” Robert Klein, a UK-based investor with LocalGlobe, shares a similar view with sifted.eu. He believes that startups have more options to survive with the help of active seed investors, than local small businesses. Similar to the US, concerns about investors potentially being protected from their losses by taxpayer money are raised.
As the crisis continues to unfold, how the startup community will be impacted in the long-run remains to be seen.
In the short-term, Chinese investor activity, in the aftermath of COVID-19 in China, could indicate what lies ahead across the globe in the upcoming months. During the first quarter 2020, there was a 39% drop-off in deals to VC-backed Chinese companies and similar declines in corporate-backed deals, according to CB Insights. Seed-stage startups were disproportionately impacted as early-stage investors focused on managing their existing portfolios.
Startup funding already faced leaner prospects heading into 2020. With the strain of COVID-19, it will be difficult to know if startups that shut down their operations this year could have made it through in other circumstances.