March 12, 2020
Call to the EU and Member States to Provide Liquidity in Support of Startups and Innovators
EBAN, the trade association representing business angels, seed funds and early stage market players in Europe, expresses its worries and concerns on the effects that the current COVID-19 virus crisis is already having on the European startup and innovation ecosystem.
Our association urges the EU and its Member States to take immediate extraordinary measures to counteract the current crisis and foreseeable future consequences.
Startups (also defined as micro enterprises1 and high growth enterprises2), research and innovation projects, will be the first to suffer the effects of a liquidity crunch. We are already witnessing postponements of private investment decisions, supply chain disruption and serious reductions of customer orders. Limited access to cash, without any doubt, will force many startups into bankruptcy, interrupt innovation projects and delay the continuation of research in many fields. The most imminent issue that startups and innovators face is the lack of resources to fund their day to day operations and teams. With limited cash reserves and virtually no access to the traditional banking sector, startups and innovators are entirely dependent on their personal savings, on investors and on grants to support their growth and development.
According to a 2017 Eurostat study, small and medium-sized enterprises typically account for 99.5 % or more of enterprises in Europe and for roughly two thirds of total employment. The overall contribution of high growth enterprises to employment is considerable and ranging from as low as below 8 % in Romania to as high as just under 25 % in Ireland (24.7 %) and Portugal (23.1 %). The central role of high growth enterprises is emphasised as these enterprises typically account for around 15 % of the total persons employed in the business sector3.
Extraordinary measures should be taken immediately by both the EU and the Member States to provide the innovation and entrepreneurship ecosystem access to cash to finance working capital needs, thus avoiding massive losses of jobs in this specific sector of the economy, and dissipate the efforts made in the past years by all stakeholders in support of innovation and entrepreneurship.
Furthermore, since the EU is heavily subsidizing the launch and growth of startup businesses across Europe with multi-Billion Euro programs like Horizon 2020 and Horizon Europe, ensuring the continuity of the businesses and innovations supported should be of utmost importance. There is a concrete risk that many of the beneficiaries assisted through EU funded programs will simply be put out of business or interrupted by this new crisis.
We call on the EU Parliament and Commission to take immediate action and work with Member States and local institutions to set up and implement a pan-European program that can offer liquidity to startups, innovative SMEs and small research and innovation projects affected by the current crisis and the possible new economic and financial downturn it may lead to. The program should be designed and implemented at an EU level and replicated nationally by Member States. We suggest that any envisioned measures or programs addressing the startup and SME liquidity crisis be easily and rapidly accessible to possible beneficiaries of these. At a local level, public institutions such as State owned banks must be put in the conditions to quickly process requests for short term credit and offer loan and/or grant products in a timely manner to the startups, innovative SMEs and innovators in need of cash.
EBAN remains at the disposal of the EU and of Member States for any consultation related to this topic.
EBAN is the pan-European representative for the early stage investor gathering over 150 member organizations more than 50 countries today. Established in 1999 by a group of pioneer angel networks in Europe with the collaboration of the European Commission and EURADA, EBAN represents a sector estimated to invest 7.5 billion Euros a year and playing a vital role in Europe’s future, notably in the funding of SMEs.
1 Micro enterprises are defined as companies with fewer than 10 persons employed. Source: Eurostat: –https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:Micro_enterprises
2 High growth enterprises are defined as having an average annualised growth in employment greater than 10 % over a three-year period. An additional condition is that they employ a minimum of ten persons at the beginning of the growth. Source: Eurostat – https://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:High-growth_enterprise