European startups are calling for extra flexibility in EU state aid rules to permit nationwide governments to present liquidity for the area’s fledgling digital companies throughout the COVID-19 disaster.
In a joint letter addressed to Commission EVP Margrethe Vestager, greater than a dozen startup associations from throughout the bloc have referred to as for rules to be tailored to guarantee digital companies are usually not blocked from receiving any emergency state aid.
In March the Commission utilized an replace to EU state aid rules clarifying how Member States can present assist to homegrown companies throughout the coronavirus emergency.
However the startup affiliation representatives co-signing the latter — which embody reps from Coadec within the UK, France Digitale, Germany’s Bundesverband Deutsche Startups, Startup Poland and a number of other others — are involved the framework is being too narrowly drawn the place digital upstarts are involved.
They level out that startups could also be deliberately working at a loss as a calculated wager on gaining scale down the road, making the present rules a poor match.
“Startups throughout Europe report that the Temporary Framework for State Aid just isn’t but giving sufficient flexibility to Member States to assist startup ecosystems,” they write. “The definition of an ‘undertaking in difficulty’ is meant to apply to loss-making companies. Such a definition will usually be sufficient to deny assist being given to such a enterprise. However many startups are loss-making by design of their first years, as they’re taking a calculated wager on exponential progress and related job progress that can emerge within the following years.
“Only taking the current cash flow into account belittles the economic potential of these startups and prevents them from receiving much-needed support. In doing so it can undermine the post COVID-19 recovery, as it is today’s loss making startups which will be the driver for economic and job growth in the future.”
The letter goes on to name for startups to “receive the support that other economic actors are also receiving”.
“Startups provide a key opportunity for our economies and societies to recover as we come out of COVID,” they counsel, including: “They will play a central part in re-growing our economy and crucially in doing so on a more carbon-neutral footing.”
We reached out to the Commission for a request for remark however on the time of writing it had not responded.
While it’d a little bit of a contradiction for VC-backed tech companies which can select to function at a loss throughout ‘normal’ occasions to be calling for liquidity assist now, Benedikt Blomeyer, EU coverage director at Allied for Startups — considered one of quite a lot of startup associations signing the letter — advised us the argument is solely that Europe’s startups ought to have the option to anticipate the identical form of assist that’s being prolonged to different sorts of companies.
Quite a lot of EU Member States have laid out main assist applications for startups to date — comparable to France’s $4.3BN liquidity assist plan, introduced in March; and a match fund revealed final month within the UK (which stays an EU member till the top of this 12 months).
But the rivalry seems to be that liquidity isn’t flowing to all of the European startups that want it, nor arriving in a well timed sufficient approach.
“For startups, loss-making doesn’t mean that it is necessarily a failing business,” Blomeyer advised News Brig. “The bigger picture is that we are looking at startup ecosystems as key providers of jobs and economic growth coming out of the crisis. Some startups will fail, just like other businesses. But the question is whether startups should be able to access the same kind of support that other companies can to help them survive this crisis. We believe they should.”
Commenting on the problem in a press release, Paolo Palmigiano, head of competitors, EU & commerce for legislation agency Taylor Wessing, agreed the EU state aid rules might battle to accommodate Internet companies.
“The criteria introduced by the Commission in the Framework that a company must be viable as of 31 Dec 2019 makes sense in the old brick and mortar world. A company which would have gone in any case bankrupt, even without the current crisis, should not receive aid. The criteria start to be more complex and causes difficulties for tech companies which might not be profitable at the time although they could be in the future,” he stated.
“The state aid rules were created in the 60s at a time when the single market did not exist and Europe had a lot of old-style industries (like steel). We need to see how the Commission react but I can see them struggling – how do you distinguish a loss making tech company which in any case would have gone bankrupt from a loss making company that will become profitable in the short term?”
Asked the way it believes the Commission ought to substitute the present viability standards and assess which startups advantage assist and which don’t, Allied for Startups’ Blomeyer referred to as for a blanket exemption for startups based during the last half decade or extra.
“There could be a clear exemption from the UID test for companies that have been set up in the last 5-7 years,” he steered. “We need to underline that this is an unprecedented crisis that requires extraordinary measures. So while in normal times a regular process of assessing whether/how to assess startups might have worked, now the ecosystems that built them are melting away before our eyes because of the barriers. The basic conundrum is that it is unclear whether a loss-making startup is indeed not a viable business. This needs resolving.”
In what now seems like an earlier age late final 12 months — as European Commission president Ursula von der Leyen was taking over her five-year mandate — tech-driven change was recognized as considered one of her key coverage priorities, with digitization and a inexperienced deal taking middle stage, alongside a push for European tech sovereignty and assist for homegrown startups to scale up.
So if Europe’s startups are feeling ignored now, in the midst of an unprecedented financial shock, that hardly displays effectively on the Commission’s claimed excessive tech coverage objectives.