For a long time, the money flowed freely for founders - thanks to the good economy and risk-taking investors. But with the corona pandemic, the tide should now turn. Some startups are facing difficult times.
Frankfurt / Main (dpa) - According to a study, the existence of the corona crisis could threaten many start-ups after record years with lavish financing.
Investors should take a closer look at the financing of young companies and break down income from founders, according to an analysis by the consulting firm EY.
"For the time being, 2019 was probably the last record year for the European start-up ecosystem," said Hubert Barth, chairman of the EY management team in Germany. The pandemic will lead to significantly fewer investments and massive loss of sales. Barth warned that if the financing market for founders dried up, this would set Germany back as a technology location by years. He spoke of an "existential challenge" for the industry.
Start-ups generally do not write profits and rely on capital from investors. Many founders bring private wealth into their companies and have little reserves - which makes them vulnerable.
"The majority of start-ups are only financed for a few months," said EY partner Peter Lennartz on Tuesday. Investors would have to decide which business models are viable. There will be interim financing for promising companies, but less often large investments. In any case, the money is usually distributed among just a few winners - around 2019, the long-distance bus provider FlixMobility, the travel portal GetYourGuide or the online bank N26.
Startups' hopes are now focused on the two billion euro protective shield of the federal government. The grand coalition wants to prevent the laborious progress in the German start-up landscape from falling victim to the Corona crisis.
Public venture capital investors at the fund of funds and fund level, as with the KfW development bank, should receive additional funds in the short term. These can be used for investments together with private investors for financing rounds of start-ups.
Last year, start-ups in Germany and the rest of Europe had raised record amounts from investors and closed some big deals. Investments by funds and corporations in growth companies rose by 46 percent to EUR 31.1 billion - even if the second half of the year was already weak.
Start-ups from Great Britain extended their lead to EUR 11.1 billion in the year as a whole. German start-ups received 6.1 billion euros, 32 percent more than in 2018; they were ahead of those from France (5.0 billion). When it came to raising money, founders from London were clearly in the lead, followed by Berlin, which put Paris just third.
The pandemic is already putting a strain on business in nine out of ten young companies, the Federal Association of German Startups recently warned. A good 70 percent would see their existence at risk. While tourism and event companies are particularly badly affected by the pandemic, start-ups for digital health and medical services, video conferencing, electronic learning or online trading portals could benefit in the medium term, according to EY.
Press EY
Federal Association of German Startups
