Coronavirus lockdown measures and the subsequent slowdown in economic activity of recent months have put European companies of all sizes under the cosh.

Being typically smaller and more fragile, start-up companies have been particularly hard hit. Plummeting cashflow and demand have forced many into survival mode, precipitating layoffs and a rush to find financing, particularly in hard-hit sectors such as travel and tourism.

A global survey published in April 2020 by Silicon-Valley based research and advisory firm Startup Genome found some 65% of startup companies have less than six months’ worth of cash in the current circumstances. Some 74% have had to make full-time employees redundant.

To mitigate the risk of unravelling years of guided policy and investment into start-up ecosystems across Europe, governments have rolled out measures to retain the remaining jobs and ameliorate long-term impacts.

But which European support programmes are best suited to help troubled start-ups survive?

Commission support

More than 10,000 start-ups and small and medium-sized enterprises (SMEs) from 16 countries have applied for grant support from the European Commission since the start of the crisis. This amounted to a total financial request of more than €26bn. 

The European Commission also announced on June 8 that it had awarded €314m of grants to innovative companies helping to combat the coronavirus. 

An academic survey published in the Journal of Business Venturing Insights in June 2020 said: “It should be a key priority of policymakers in the short term during the Covid-19 crisis to guarantee that innovative start-ups can call on sufficient resources.” 

National measures 

Start-up support schemes at the national level have focused on improving firms’ liquidity through measures such as tax exemptions, improved loan availability and reduced loan interest rates. 

France led the way in Europe, announcing a €4bn cash injection for start-ups on March 25, which has subsequently been updated and refined. The French government has also offered other measures, which include deferred social charges and taxes, and loans backed by state-backed investor Bpifrance. 

The Norwegian government shortly followed by announcing a NKr4.5bn (€420m) package on March 27, which included innovation grants and interest-free periods for start-ups and SMEs.

Other northern European countries introduced specific programmes for start-ups, such as the Netherlands under its temporary ‘bridging’ funding scheme, and Denmark making extra credit available. 

Following cries for help, such as a letter by the UK’s biggest scale-ups to chancellor Rishi Sunak, the UK government earmarked £1.25bn ($1.6bn) of support for start-ups and tech businesses on April 20. The UK also opened a £500m Future Fund on May 20, offering start-ups loans from £125,000 to £5m, which can be converted into equity, but must be at least matched by equivalent funding from private investors.

Bailout fund

Germany, meanwhile, has launched a €2bn bailout fund to provide start-ups with long-term support, while the country’s €750bn Covid-19 rescue package is open to start-ups that have private financing with a company value of at least €50m. 

Southern European countries have also pushed through comprehensive support schemes. Spain initially allowed start-ups to defer tax bills of up to €30,000 for six months, but the scheme ended at the beginning of June. Much of the remaining support in Spain has come from investors, such as a €500,000 “super seed” fund launched by venture capital firm Target Global.  

Italy has offered a state guarantee of up to €5m for SMEs, alongside a €220bn deferral on all loans and mortgages, while Israel’s government has committed to give grants to high-potential start-ups in need of financial assistance. 

Many European governments have also established furlough schemes that partly pay employee wages, so companies can afford to temporarily send workers home.

Effective approach

With the primary goal to retain jobs and preserve innovation in fast-growing companies and their surrounding ecosystems, experts have called for support schemes to focus on the more developed start-ups. 

“The most effective programmes have generally been ones already focusing on supporting start-ups backed by venture capital and growth funds,” Eric de Montgolfier, chief executive of private capital trade association Invest Europe, told fDi at the beginning of May. Start-ups with venture capital backing tend to be at a later stage in their life cycle, meaning they have greater potential for job creation.

“The later stage the start-ups are, the more you want to support them as they are closer to creating a lot of jobs,” says JF Gauthier, founder and chief executive of Startup Genome. “Pre-seed and seed stage start-ups are important, but it takes a long time to replace series A start-ups,” he adds, adding that around half of this stage of start-ups are dying.

A European Commission report at the end of April said: “Many of these support measures already exist but require modification to increase their reach.” 

“It’s not just about cash; it’s also how [governments] bring start-ups to health, basically creating demand for them as they’re losing their business customers,” says Mr Gauthier. 

Support hurdles 

The speed and smoothness with which these programmes have been rolled out to start-ups has boosted their impact. “Where extensive support to start-ups had already been granted, reaction has been typically faster and better suited to the actual needs of businesses,” adds Mr de Montgolfier. 

Yet complications involving the EU definition of SMEs, the understanding that banks have of the start-ups they are granting loans to, and state aid rules have all made it more difficult for these companies to get the necessary support. 

EU state aid rules, which have effectively blocked government support going to loss-making companies, have led many start-ups to scramble for cash. Meanwhile, the UK Future Fund had only approved 10% of the 533 loan applications made since opening on May 20, at the time of writing. 

While government support programmes vary, it is clear that accessible and swift support will be the best way to boost the survival chances of innovative and entrepreneurial networks across Europe.

Published in the June/July issue of fDi Magazine.

The FT and TNW’s Ecosystems Couch Conference on start-ups and the digital economy takes place on June 25