Without additional loans, subsidies or benevolent investors, almost half of all start-ups in the world fail due to the corona crisis. This is the calculation made by the research agency Startup Genome. In a report that appeared this afternoon, the research bureau further revealed that about three-quarters of start-ups had to lay off personnel. Most of the dismissals were in North America, followed by Europe and Asia. Startup Genome, with more than 100 clients on 5 continents in 38 countries, advises governments on supporting and encouraging start-ups. Between the end of March and mid-April this year, 1,070 companies from 50 countries participated in the international survey.
It is not unusual for many new start-ups to have only a small financial reserve of about three months. Before the crisis, that was about 29 percent. COVID-19 has now increased that number to 41 percent. New businesses mainly have to deal with the withdrawal of previously pledged financing or see their financing slow down considerably. In just 28 percent of the cases, the financing proceeded normally or the start-up received the promised funds.
Most start-ups continue to operate despite lockdown
More than two-thirds of start-ups have reduced spending since December 2019, with the lion’s share doing relatively well. However, some companies are cutting costs very sharply, with more than 1 in 10 companies reducing expenditures by more than 60 percent. It is mainly the technical start-ups that can continue to operate even in a situation of complete lockdown. This is in contrast to many traditional companies. Of all start-ups, 96 percent indicated that they are continuing to work during the crisis, even though there was significant disruption. What also plays a major role is that three out of four starters are actually working in sectors that are severely affected by the corona crisis. Three-quarters of new companies experienced a moderate decline in income, but 16 percent of the participants in the survey indicated a sharp drop of 80 percent or more.
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Marketing manager Martijn Koerts of InnoEnergy in Eindhoven, Netherlands, an organization that invests money from the European Commission and private lenders, comments on this development. “The measures taken by the Dutch government that have partly shut down social life and therefore the economy until at least June 1 are having a huge impact. Many festivals, for example, have been cancelled. That is a setback for a start-up such as Wattsun, for example, in which we invest. It supplies batteries for sustainable electricity on location, such as at festivals. You can imagine how this would have an impact.”
“Every crisis creates new opportunities”
The pain is not evenly distributed across all newly-founded companies. Enterprises that focus on businesses do much worse than start-ups in the consumer market. At the same time, a small minority of companies are experiencing growth right now. In fact, 12 percent of start-ups have
seen their revenues increase by 10 percent or more since the beginning of the crisis. And 1 in 10 start-ups is working in a sector that is actually experiencing growth. In particular, start-ups that offer solutions for home education are experiencing golden times.
“Every crisis creates opportunities,” says Startup Genome in the report. “For example, more than half of the Fortune 500 companies were founded during a recession. More than 50 ‘unicorns’ saw the light during the Great Depression. The COVID-19 crisis is no exception.”
Almost two-fifths of start-ups don’t expect any financial help in this crisis, yet that’s exactly what they need. The most important measures that can help start-ups are public support to maintain business liquidity, measures that stimulate investment and support for employees such as wage measures and loans. In Europe, both national governments and the European Union are helping. For example, the German government wants to help start-ups that are having difficulties due to the corona crisis with a fund of two billion euros. “Our economy lives on the fact that new ideas and businesses are always being created,” said finance minister Olaf Scholz.
The Netherlands allocates an extra 100 million to start-ups
InnoEnergy is also looking for solutions. “These start-ups are our new, sustainable economy. We don’t want to lose them.” In the Netherlands, in response to pressure from the business community, the cabinet decided on an additional package of economic measures for start-ups. These will be available next week (the last week of April) for start-ups, scale-ups and “other innovative companies” affected by the corona crisis. They will then be able to apply for bridging loans from regional development companies.
“These companies usually have a healthy balance sheet, but no banking relationship. At the moment – as a result of the corona crisis – it is difficult for them to turn to the bank for bridging loans, because banks are now focusing on existing customers,” says Minister Wiebes. The government will initially make €100 million available for this purpose. The amount of the loans varies from €50,000 to €2 million. The government emphasizes that it supports “fundamentally healthy businesses” and that the loans are purely for temporary bridging.
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