How Europe lost its tech companies
European countries are looking to rescue their tech startups as the region faces a looming economic downturn due to the coronavirus crisis.
France launched a € 4 billion ($ 4.4 billion) liquidity plan to support its startups’ cash flows. The package includes short-term refinancing, investments in already planned funding rounds and early payment of some tax breaks.
On Wednesday, the German government said it would provide € 2 billion in financial aid to help young tech businesses stay afloat. The country is also considering a € 10 billion long-term fund project to support large startups..
Germany and France together are leaders in the EU when it comes to locating the most funded technology sectors. Both countries raised $ 7 billion and $ 5.2 billion in venture capital last year, according to Dealroom..
Across the continent, however, they are second and third behind Britain, whose private tech firms raised a record $ 13.2 billion last year. The UK, which is no longer a member of the EU but still adheres to common trade rules, is facing requests from its tech industry to bail out startups that could collapse in the coming months without access to government support..
This comes amid massive disruptions in economic activity caused by the COVID-19 pandemic, as the crisis destroys the revenues of a number of startups and confuses venture capitalists..
Although the UK government has introduced an emergency lending scheme to support small businesses, some senior figures in the tech industry say many startups are effectively blocked by the program as they are not yet profitable..
In recent days, European governments are trying to do more for hard-hit digital companies.
In the UK, seven industry lobbying groups wrote a letter to Treasury Secretary Rishi Sunak calling for a £ 300m ($ 373m) fund to help them continue their operations, Sky News reported..
The proposed «runway fund», which was previously reported by CNBC, will provide loans, which are then converted into shareholdings in the next round of financing of the companies. The idea was backed by renowned industry groups as well as renowned venture capitalist Brent Hoberman..
Meanwhile, Brussels-based lobby group Allied for Startups hopes it can convince the European Commission – the EU’s executive arm – to better coordinate EU start-up assistance programs..
Startups have already been hit by fears of an impending recession. Natalie Crump, CEO of US-based Profusion, told CNBC that she was forced to slow down funding negotiations, while other entrepreneurs said they saw investors pulling out of deals due to valuation problems..
Mark Tlusch, CEO of Luxembourg-based Mangrove Capital Partners, expects food and transportation startups to take drastic cost-cutting measures to fight to survive.
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