LocalGlobe, Latitude, Dealroom and European Startups, in partnership with 33 leading European Venture Capital funds, have teamed up to release the most detailed ever look into the resilience of startups, across different sizes, business models and locations. With particular focus on the impact of the current crisis, these new survey results explore the tough decisions being made, and the government support measures utilized by venture-backed startups and scaleups.
The Covid-19 crisis has caused dramatic shifts in strategy and outlook across the board for European startups, and now we can see the full extent of the impact.
Some key findings:
- 35% of respondents saw their March and April revenues decline by more than 25%. However, businesses seemed to be optimistic about the impact on full year plans.
- Seed stage companies across Europe are most likely to apply for state help.
- Many respondents have sought to reduce non-staff costs, in view of a more challenging funding environment.
- Respondents indicated a desire to return to using offices as well as to flying for work, as soon as possible. Many however said they would allow their teams to work remotely.
- Only a minority of respondents committed to lay offs, but many had furloughed employees and frozen hiring.
The survey gathered responses from founders and executives from 140 companies across Europe, in addition to 200 UK companies previously surveyed by LocalGlobe and Latitude. Participants were spread across at all stages of investment, from pre-Seed to Series C+. Over 50% were founded in the last 5 years, and over 50% of respondents had raised more than $10m. The companies cover a broad range of industries and a diverse range of business models, servicing consumers, gig/freelance workers, SMBs and enterprises. The data can be sliced to compare different factors, for example, this view shows companies’ 2020 revenue outlooks against previous projects, clustered by business model.
In general common themes included measures to reduce overheads and extend runway in uncertain economic and funding environments. These survey results provide one of a number of important snapshots of what’s going on inside tech companies during the crisis. The survey questions were also aligned with those of Station F’s recent survey to maximise value from comparable results.
40% of the new survey respondents expect 2020 revenues to be at least 25% under plans. This compares to almost 70% of companies in our UK survey who gave the same answer. As the UK survey was conducted earlier, this difference could be reflecting a recent recovery in business confidence due to lockdowns easing, though both figures still offer significant challenges.
A third of respondents from the latest survey reported less than a year of runway. This compares to 40% of companies in our UK survey who gave the same answer, most likely reflecting the higher share of later stage respondents in the international survey. This chart shows that in general the further along a company is in its growth journey, the more buffer exists in the runway.
43% of respondents have frozen hiring, another 28% have slowed hiring. This is broadly in line with data from our UK survey, and will be in an effort to maximise runway for the uncertain short term future.
43% have cut salaries by over 15%, even if over half only did so for senior management. Again similar figures were found for the UK.
Just over 20% of imminent fundraises have been delayed according to European venture-backed startups and scaleups, reflecting similar results from the UK. While private markets backed off, governments have stepped in with billions of euros pledged in startup support in varying forms, including co-investments schemes and R&D grants.
49% of respondents have engaged a bank to enquire for a loan. This compares to just 10% of companies in our UK survey who gave the same answer, reflecting the availability of government-backed loans in some countries, such as France. (N.B. the UK survey ran prior to the launch of the UK’s Future Fund.)
63% are considering applying for grants or have already done so. This is broadly in line with data from our UK survey.
When looking at where respondents were based, we found some interesting key variation in responses.
French startups were the most likely to have initiated or considered R&D government grant applications. Just 7% of French startups considered R&D grants too much effort or out of scope for their business, compared to 48% of Germany companies, and 21% of the UK startups surveyed. With the French government having responded most decisively with startup support measures, this may have instilled a level of early confidence in the ecosystem.
While on many topics there was a lot of alignment across countries, there were a few indications that confidence in the UK may be more cautious than in the rest of Europe. Just over half of French and German startups had tried to renegotiate their office terms, compared with 85% of UK startups. And UK companies were more likely to respond saying they had engaged in or were considering venture debt – 41%, compared to 20% for Germany and 16% for France.
Further cost cutting was visible with plans for ongoing marketing spend. When asked whether the crisis would affect companies plans for online advertising, 26% of UK startups told us that they would no longer be spending meaningfully on digital marketing. This compared to 19% of German startups, and 11% of French startups.
Impact by growth stage
The figures also show that later-stage tech companies were more likely to have seen their revenues negatively affected during the first two months of the crisis (March and April), with 60% of Series C+ companies seeing revenues drop by more than 10%, in addition to 51% of companies at Series B, 52% at Series A.
Many companies surveyed were turning to their existing investors for support beyond the financial. Cash flow advice, forecasting, partnership, people, team, community, marketing and sales model were all topics where startups were looking to their support networks for guidance, and business and working practices have drastically shifted.
This survey gives us valuable insight into the common and varying challenges facing European startups in different geographies and growth stages as they tackle them. As the year unfolds, how ecosystem players respond to these pressures and reinforce the innovation economy will be borne out in our ecosystems, tracked by Dealroom.
Huge thanks to all the partners involved in making it a broad and representative survey, including for the International survey: Acton Capital, BPI France, Cherry Ventures, Cavalry Ventures, Creandum, Endeit, e.ventures, Entrepreneur First, The Family, La Famiglia, Fly Ventures, HV Ventures, Holland Capital, High-Tech Gründerfonds, Inkef Capital, Inveready, K Fund, Kima Ventures, Kibo Ventures, Lakestar, Nauta Capital, Northzone, Partech, Peak Capital, Project A, Red Alpine, Seedcamp, Speedinvest, Target Global, United Ventures, USV, Ventech, Visionaries Club, and for the UK survey: Accel, Index Ventures, Atomico, Entrepreneur First, Balderton, Kindred, Connect, Episode 1, Frontline, Seedcamp, Barclays, MMC Ventures, Dawn Capital, Octopus Ventures, Crane, Silicon Valley Bank.