The News: Coronavirus COVID-19 presents a threat to Europe’s tech startup scene and it appears that Europe lacks an emergency plan to save them, so far, anyway. While France and Germany have pledged support for their tech sectors, the U.K. is facing calls from its tech industry to do more to bail out startups to avoid collapse, many feel that isn’t enough to save Europe’s tech startups from what could be significant danger. Industry lobby groups are calling for the creation of a “Runway fund” designed to help startups continue operating by allocating loans that would convert into equity stakes at the company’s next financing round. Read more at CNBC.
Coronavirus COVID-19 Presents Threat to Europe’s Tech Startup Scene
Analyst Take: The coronavirus COVID-19 presents a threat to Europe’s tech startup scene that is requiring governments to work around the clock to help protect as many jobs and companies as they can. To be fair, it’s not just the tech startup industry that is struggling. Just about every industry and sector has been affected, from airlines, tourism, and restaurants to manufacturing, transportation, and yes, tech. The aid that governments are considering whether in the form of tax credits, low-interest loans, cash payments, stimulus packages, or other emergency economic assistance, is designed to help a breadth of industries weather the economic storm caused by the massive shutdowns, which everyone hopes will only last a few months. The problem? Tech startups, many of whom are in nascent stages, need a different kind of help. And as of this writing, Europe is still without a comprehensive emergency plan designed specifically to protect and save those tech startups from disaster. That’s a very big deal.
France and Germany Step Up to Rescue Their Own Startup Ecosystems
Given the importance to Europe of its promising but still fledgling tech startup ecosystem, which the economic bloc needs to grow to remain competitive against tech superpowers like the United States and China in the coming decades, it is surprising that no EU-wide plan has yet emerged from Brussels. Thus far, France and Germany have acted on their own, with France announcing a tech startup rescue package worth 4 billion Euros, and Germany committing to 2 billion Euros. This aid comes on the heels of the 12.2 billion Euros in total venture capital invested in both countries’ startups last year, and many hope that it will be enough to offset funding and revenue disruptions caused by the pandemic’s economic slowdown.
No European Response Yet, But Lobbying Groups Are Working On It
The fact that there is no European response to coronavirus COVID-19 as of yet is beginning to cause concern for tech startups outside of France and Germany. Allied for Startups, a Brussels-based lobbying group, has been working to convince the European Commission to proactively coordinate startup relief across EU countries. Benedikt Blomeyer, director of EU policy for the group, argues that “a start-up shouldn’t be at a disadvantage because it is in Spain and not in France.” He isn’t wrong. In his view, the European Commission should step up and help member states share best practices, make sure resources are properly allocated, and with the best tools available. A coordinated approach and a boost in funding across the EU would certainly be welcome news to startups based outside of Germany and France.
The European Commission is Far from Asleep at the Wheel
The European Commission is far from asleep at the wheel. Last month, the EC set aside a 164 million Euros fund to help European startups and small businesses develop technologies to help combat the coronavirus COVID-19 outbreak. Unfortunately, because the fund is specific to pandemic mitigation innovation, and not particularly generous, it is neither applicable to the majority of tech startups across Europe nor sufficiently scalable to function as an economic rescue package. It should also be said that the European Commission already supports Europe’s startups with a variety of programs through its Startup Europe initiative, but as of the drafting of this article, no economic aid package like the ones offered by France and Germany had been announced. The European Commission is nonetheless actively working to tackle the economic strain of the Coronavirus pandemic with a wide range of aid packages, loans, and other emergency measures, not the least of which is its 100 billion Euro economic solidarity program dubbed SURE. Though other economic aid instruments are and likely will become available, SURE should help provide small businesses, and among them tech startups, with basic economic relief for months to come. Two questions emerge: 1) will that non-specific aid be enough to keep notoriously cash-hungry tech startups afloat while the shutdown endures? And 2) will member states with traditional economies far more dependent on farming, fishing, manufacturing, and tourism prioritize those sectors at the cost of their still young and undeveloped tech startup sectors?
What to Expect Next
So, what’s ahead? I expect that in some cases, standard economic aid offered through SURE and by the countries EU-based tech startups operate in, in conjunction with funding they were already benefiting from, will help carry them through the next few months. For less fortunate startups, however, slow or inadequate economic aid from their host country, whether backed by SURE funding or not, especially if exacerbated by disruptions in revenue and/or VC funding, may force otherwise promising young tech startups to shut down prematurely. And that’s the fear. To Blomeyer’s point, it would be a shame if startups across Europe should fail, not because they were unable to outperform their rivals in the marketplace, but because they didn’t have access to the same kind of dedicated emergency economic aid as their rivals in Germany and France. While small businesses have traditionally formed the backbone of most economies, tech startups in particular represent a critical investment in every country’s economic future. It is not far-fetched to imagine that some small startup in Spain, Italy, the Netherlands, or Slovenia could someday grow to become the next Google, Facebook, or Amazon. And as Europe as a whole would be well served by such a turn of events, the European Commission may have a responsibility to consider not only the cost of extending dedicated economic aid to tech startups across all of its member states, but the opportunity cost of not doing so. Thus far, the actions taken by the Commission in the midst of this sudden crisis seem to me sound, measured, and adequate, given the scope of the challenge at hand. That notwithstanding, it wouldn’t hurt to see the Commission also take steps to ensure that the tech startup sector across Europe is as well protected as the bloc’s traditional ecosystem of factories, farms and fisheries. I’ll be watching the forward progress the EU is able to make on this front with interest.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.