Yesterday, the German Startups Association published a survey: According to the survey, the coronavirus crisis is affecting nine out of ten startups in Germany. More than one in seven even fears for their continued existence. Shortly thereafter, German Finance Minister Olaf Scholz announced a two billion euro aid package for startups.
In a virtual press conference this morning, Christian Miele, President of the Federal Association of German Startups, was surprised by the results of his association's survey:
“The picture is more dramatic than we thought possible.”
The crisis is hitting startups in almost all sectors hard. The construction industry is an exception, having so far proven resilient. Startups in the HR and tourism sectors, in contrast, are particularly hard hit. Larger startups with more than 50 employees are somewhat less likely to feel threatened by their existence. The same applies to startups that have just completed an investment round and are not currently dependent on external financing.
Many startups do not have access to KfW loans
In addition to the lack of reserves, the lack of access to credit is a major problem for startups: Due to their business model, startup loans often pose too great a risk of default for banks. Many startups therefore also have no access to the KfW's special program, which provides companies with simplified and accelerated access to loans. Applications for crisis loans are also handled through the bank, which in most cases will not lend money to a startup.
Although it has already been decided to include startups with a valuation of at least €50 million under the Corona liquidity umbrella, the multitude of small startups that make up the ecosystem are threatened. Christian Miele therefore called for work "at lightning speed" to prevent the middle management of the startup ecosystem from collapsing.
Olaf Scholz: Two billion for startups
Just hours after the startup association presented its alarming figures, German Finance Minister Olaf Scholz addressed the concerns of the startup scene at a joint press conference with Bavarian Minister-President Markus Söder in Munich. Scholz surprisingly announced that he would allocate an additional €2 billion to startups.
Opposite startup scene Thomas Jarzombek, the German Federal Government's Commissioner for Startups, explained that the money should not flow directly to startups, but rather to private investors who want to support struggling companies. According to Jarzombek, applications for support should be open to both VC investors and small shareholders, such as the founding team. From a legal perspective, the public share of financing rounds may not exceed 70 percent. However, the size of the share has not yet been decided. The goal is to implement the aid measures as early as April. Furthermore, Jarzombek stated that the money should ideally flow back to taxpayers with a return.
