Start-ups face significant challenges during COVID-19
Most existing start-ups face significant challenges due to the COVID-19 crisis, as they are more vulnerable than older incumbents to the shock brought by the pandemic. They tend to engage in high-risk activities compared with other small and medium-sized firms (SMEs), face constraints in accessing traditional funding, and have a formative relationship at best with suppliers and customers. They also often crucially rely on a small founding team, and this can further increase their vulnerability to labour supply shocks during the pandemics.
At a time marked by significant economic uncertainty and with their revenues affected by containment measures and significant drop in demand, start-ups become even more financially fragile and need support for their short-term liquidity needs, critical for their survival.
In many countries, policy responses aimed at shielding the economy from the crisis are already targeting firms’ financial fragilities, especially for SMEs. These include measures to sustain short-term liquidity needs, such as loan guarantees, direct lending, grants or subsidies. However, policy responses should take into account the specificities of start-ups with respect to other SMEs (OECD 2020b). Some countries have introduced measures more specifically focused on start-ups. For example, France has set up a €4 billion fund to support start-up liquidity, including bridging start-up funding rounds; Germany has announced a tailored start-up aid programme, expanding and facilitating venture capital financing; and the UK has announced a co-financing fund for innovative companies facing financial difficulties (OECD 2020a).