- Financing of European start-ups at record level in 2019: investment rose by 46 percent to 31.1 billion euros
- However, the number of financings increased by only one per cent – declining in the second half of the year
- In Switzerland, there were 329 financing rounds (36 percent more than in 2018) totaling 1.5 billion euros (2018: around 1.3 billion)
- The current coronavirus pandemic is an existential crisis for start-ups; however, areas such as biotech and medtech as well as digitization should benefit
After record levels of financing last year, a massive slump in start-up financing is now expected for 2020 due to the current coronavirus crisis. In 2019, the total value of start-up financing rose by 46 percent on the previous year to 31.1 billion euros. However, the number of financing rounds increased by only one percent to 4,246. Each individual deal thus amounted to 7.3 million euros on average. This is according to the latest Start-Up Barometer from the auditing and consulting firm EY. The study is based on an analysis of investments made in 2019 in European start-ups; companies younger than ten years are considered start-ups.
“2019 will probably be the last record year for the European start-up ecosystem for the time being,” says Roger Krapf, partner and head of the EY Start-Up Initiative in Switzerland. "The coronavirus pandemic will not only lead to a significant drop in investment, but many companies can also expect massive falls in sales. Within a short period of time, this pandemic has developed into an existential challenge for start-up companies in Europe and around the world,” says Krapf.
Decline began back in the 2nd half of 2019
Despite Brexit looming, the UK 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 flowed into British start-ups, 54 percent more than in 2018. However, the number of financing rounds declined, falling by eight percent to 971. And: of the five largest financing rounds in Europe last year, four went to young British companies.
A decline in financing activities in Europe was already noticeable in the second half of 2019: compared with the first half of the year, investment volume shrank by 15 percent to 14.2 billion euros, and the number of financing rounds also fell by 15 percent to 1,944. In 2020, Krapf expects both the number of deals and the invested sums to decline even more sharply. How sharply depends on the strength and duration of the current coronavirus crisis: “What is certain is that the European start-up ecosystem is facing the biggest test in its history,” says Krapf.
Financing bottlenecks expected
Last year, an enormous amount of money flowed into young European companies – but the bulk of the money went to a few large companies that already have a lot of capital. “This means that the majority of start-ups are only fully financed for a few months and will need fresh money after this,” says Krapf. “The hopes of the industry now rest not only on investors but also on the protective measures that some countries have already announced, because there will still be interim financing for promising companies – but we will see major new investments considerably less often than in 2019.”
The current situation is also a particular challenge for investors, as company valuations have to be revised downwards, making it much more difficult to exit from or sell start-ups. “For investors, the main priority now is to get their portfolio companies through the crisis,” says Krapf.
Innovation must not be set back
What is crucial in this difficult situation is that the financing market does not dry up completely, as this would weaken the innovative strength of European start-ups significantly and set them back for years. At the same time, it shows that even stronger digitization of the economy is essential. “It is now becoming clear how important platforms are on which teachers teach their students via live streaming, for example. And how much of an advantage there is for companies that have already introduced functioning work-from-home solutions and web conference tools,” says Stefan Rösch-Rütsche, Country Managing Partner EY Switzerland.
There will therefore also be companies and business areas that will emerge stronger from this crisis, says Rösch-Rütsche: “Digital health in the broadest sense will boom, the development here will and must clearly accelerate now. The Biotech and Medtech segments will also benefit. The areas of logistics, food, online trading, online learning, online communication, and the software-as-a-service models could also experience an upswing in the medium term. However, we believe it will be more difficult for start-ups, especially in the travel, mobility, and events sectors.”
Arvelle Therapeutics AG with the biggest Swiss deal of 2019
In 2019 there were a total of 329 start-up financing rounds in Switzerland (36 percent more than in 2018), placing Switzerland in fourth place behind the UK, France, and Germany in the European rankings. Most Swiss deals were concluded in Zurich (114) and Lausanne (43). These 329 Swiss deals are worth a total of 1.5 billion euros (2018: around 1.3 billion), of which 368 million were transactions in Zurich and 246 were deals made in Basel. The biggest Swiss deal in 2019 was concluded by Arvelle Therapeutics AG (159.3 million euros). Measured in terms of volume, this transaction ranks 26th among all European financing rounds in 2019.
- ends -
About the global EY organization
The global EY organization is a leader in assurance, tax, transaction, legal and advisory services. We leverage our experience, knowledge and services to help build trust and confidence in the financial markets and in economies all over the world. We are ideally equipped for this task – with well-trained employees, strong teams, excellent services and outstanding client relations. Our global mission is to drive progress and make a difference by building a better working world – for our people, for our clients and for our communities.
The global EY organization refers to all member firms of Ernst & Young Global Limited (EYG). Each EYG member firm is a separate legal entity and has no liability for another such entity’s acts or omissions. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information, please visit www.ey.com.
EY’s organization is represented in Switzerland by Ernst & Young Ltd, Basel, with ten offices across Switzerland, and in Liechtenstein by Ernst & Young AG, Vaduz. In this publication, “EY” and “we” refer to Ernst & Young Ltd, Basel, a member firm of Ernst & Young Global Limited.