Europe Week
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A “massive slump” in start-up financing was expected for 2020 in Europe due to the coronavirus crisis, according to a study published by the consulting firm Ernst & Young (EY) on Tuesday.

In 2019, the total amount of start-up financing in Europe increased by 46 percent year-on-year to 31.1 billion euros (33.8 billion U.S. dollars), according to the EY study which had been published since 2015 every six months.

“2019 is likely to be the last record year for the European start-up ecosystem for the time being,” said Hubert Barth, chairperson of the management board of EY Germany.

The EY study noted that Britain was able to “maintain and even expand” its leading position within the European start-up scene in 2019.

A total of 11.1 billion euros were invested in British start-ups, an increase of 54 percent compared to the previous year, according to the study. At the same time, the number of financing rounds decreased by 8 percent to 971.

In second place came German start-ups which recorded an increase of 32 percent and received 6.1 billion euros, according to the EY study.

In France, start-up investments even rose by 50 percent to 5 billion euros. The number of financing transactions increased in both Germany and France, with Germany up by 13 percent and France by 14 percent, according to the study.

Last year, an “enormous” amount of money went to European start-ups, with the majority going to a few large and well-capitalized companies, EY noted. However, the majority of deals were rather small, with 59 percent of all deals in Germany in the range of up to 1 million euros.

“The majority of start-ups are only fully financed for a few months,” then the start-ups need new money, said Peter Lennartz, partner at EY. “The hopes of the industry” were now resting on the 2-billion-euro support for start-ups announced by the German government last week.

“Start-ups should continue to be able to successfully tinker with their ideas even in the current crisis,” said Minister of Finance Olaf Scholz, when presenting the funds for German start-ups during the coronavirus crisis. “Germany needs innovative minds for a good future,” said the minister.

According to the EY study, a decline in financing activities for start-ups in Europe was already noticeable in the second half of 2019. In 2020, both the number of deals and the sums invested were “likely to decline even more sharply,” EY noted.

“The coronavirus pandemic will not only lead to significantly lower investments,” stressed Barth, who believed the “massive” losses of sales for many companies would make this crisis “an existential challenge for the European start-up ecosystem.” Enditem


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