With lockdown measures in place to reduce the spread of the coronavirus, companies around the world continue to worry about the economic consequences of the pandemic. Start-ups in particular are more concerned about the situation, given that a lot of focus in the immediate term is on managing cash flow and daily costs. With fundraising not likely to bear much fruit in the middle of a pandemic, these small and medium-sized businesses (SMEs) may have to look to their respective governments for help.
True to form, many governments around the world have unveiled financial stimulus packages to cushion companies from the economic implications. In France, the government has unveiled a €4 billion aid package to help start-ups. The fund, under the supervision of various government agencies, is designed to help the country’s start-up ecosystem navigate these uncertain times.
The government’s move to unveil financial aid is an acknowledgement of the importance of start-ups to the economy. Indeed, in 2019, French start-ups raised €5 billion and helped create 25,000 new jobs, a significant number for a sector that has also displayed the agility and capacity to adapt. However, with the coronavirus being unprecedented in its nature, this financial aid will go a long way towards keeping businesses afloat and possibly delay any talk of bankruptcy, a situation the French government is hoping does not happen.
Since 2017, the French Government has played a significant role in supporting start-ups. From initiatives such as La French Tech to providing funding, the government is keen to see early-stage ideas grow and mature. However, the coronavirus pandemic is a real threat to their existence, especially since many rely on continuous funding that may not be possible during a period of global disruption.
Thibaut de Roux is a former HSBC executive who is involved in a start-up with links to big data and technology, and the €4 billion kitty will undoubtedly offer a lifeline to many similar start-ups. The funds will be allocated according to the following measures:
- An €80 million package that will provide funds to start-ups reliant on fundraising from private equity and venture capital sources. The €80 million will be matched by private investors for a total of €160 million.
- A state guarantee of almost €2 billion backed by Bpifrance, which is the public bank for investment. The guarantee is part of the State’s plan to create guaranteed treasury loans that can reach twice the business’s 2019 wage bill or, if higher, a quarter of its annual revenue.
- Implementation of corporate tax credits that could reach €1.5 billion, with the credits aimed at spurring innovation and research and development (R&D) activity.
- Faster payment of €250 million in innovation support grants that were already targeted at start-ups in various fields, including cybersecurity.
Surviving the Tough Times
The uncertainty brought about by the coronavirus pandemic has been felt in many aspects of life. Every day, the context of the disease’s progression and measures to tackle it change, so that there’s little certainty on when it will truly be eradicated. Faced with this reality, entrepreneurs have had to embrace flexibility in their response to the crisis. While resilience and optimism are welcome, more must be done to counter the effects of COVID-19.
- Cash Preservation: The prolonged business disruption calls for smart money management by businesses and managing cash reserves well is one of the key things to do. Start-ups, some with limited funding, will need to perform this aspect quite diligently if they are to weather the storm.
- Employee Layoffs: Conventionally, any talk of reducing costs starts by considering the reduction of staff numbers. While reducing the wage bill can help in keeping costs low, it’s vital to note that for a start-up in a period of hyper-growths, much of the costs come from recruitments in the current period. If onboarding costs are kept low, the overall effect can delay the need to lay off employees.