We may not be out of the woods yet — not by any means — but as a number of countries around the world begin to ease their lockdown restrictions, the attention of Europe’s tech businesses is turning from concerns of the now to what comes next.
In the UK, the government’s protective measures for businesses and employees will ease some of the immediate pain for hundreds of thousands of businesses and millions of employees.
Included in its commitments is a £1.25bn package, the ‘Future Fund,’ to support innovative startups that were not covered by the government’s initial rescue schemes — by matching up to £250m of private investment and offering a further £550m of loans and grants.
These measures will be crucial in powering a vital part of Europe’s economy through the coming months.
While established businesses can often rely on loyal customers returning to drive revenue, or a long-term investor embedded into the company fabric to keep funds flowing — for a nascent startup approaching its first round of investment, a pause in investment activity could perhaps be fatal.
But how worried should Europe’s tech sector be? The ultimate economic price of COVID-19 is years from being realized, but there are already lessons we can take from the countries who are ahead of us in this fight that can give us reason to be cheerful.
If we look beyond Europe and towards Asia, analysis of the market shows that throughout the early period of the pandemic in China, deals were still getting done across the board.
While investment initially dropped, almost $10 billion still went into the sector in January and February — a period when China was hit by COVID-19 the hardest.
This should serve as a confidence boost to European startups that we are not heading for a stalemate between founders and funders.
The prevalence of investment may not be at the same level as before the pandemic, but for innovative companies with technological solutions that can help the world overcome this challenge, the doors remain wide open.
The ones to watch
By looking at the areas of investment in China over the past months, it quickly becomes clear which tech sub-sectors investors and startups in Europe should keep an eye on.
There, the focus was on enterprise service, healthcare, online education, and consumer/ retail tech — which speaks to the areas that have seen the highest growth overall. It is safe to suggest these are the verticals where we will continue to see healthy investment in Europe.
Just think about the types of company that has gone from being a luxury option, to becoming a necessity in lockdown.
Deliveroo, Just East and other European food delivery apps in the absence of eating out, Zoom for those office meetings and presentations, or even banking solutions such as Klarna that allow customers to spread their payments over time — a vital aid for people earning less than their usual salary.
There is also an increased importance in cloud infrastructure and services, as well as autonomous vehicles and robots for essential deliveries.
Tech is dictating our new way of life, and smart investors will have spotted the trends early and put their money where it matters. Smart startups will have shifted their strategy to respond to this moment, to show what makes them necessary for this moment in time.
But these investments are not just for the now, they are for the next generation as well. Humans are creatures of habit and defined by their circumstances; while we do not know what the state of the world will be in three months, six months, one year or five years, there will more than likely be a permanent change of behaviour that will mean anyone not yet caught up with the fourth industrial revolution, will be forced to in order to sustain itself.
Just look at Irish retailer Primark – the definitive example of a business that has thrived offline while the world has digitized. From turning over €735 million per month, since its stores shut on 22nd March, the retailer’s sales have plummeted to zero. In the wake of this crisis, no company will be able to afford to risk going without an online presence.
Successful companies emerge from any economic downturn and this one will be no different. But for individual businesses, overcoming this in the short- and medium-term will require a combination of their own creativity, government support, and the confidence of investors to keep putting their money into the innovations that can make a difference.
If activity in China is anything to go by, there are lessons that will provide reassurance this is possible.
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