Is The Economic Crisis Affecting European Startups At All?

A lot has already been said and written about the current economic crisis, and how the financial meltdown is and will keep on affecting startups in the US. VC’s and angel investors are telling their portfolio companies to say goodbye to the good times and batten down the hatches, and at the same time raising the bar for new financing rounds, while startup CEO’s are executing substantial lay-offs and some company founders are even jumping ship altogether.

Little noise seems to be coming from Europe though, as if the downturn isn’t having an impact on the industry here at all (or at least not yet). Not that we’re rooting for that to happen, of course, but it’s a trend worth noticing. It’s hard to say if it’s merely a matter of perception, considering there’s not really a culture about being open and transparant on dealing with internal challenges here. Or could it be that European startups simply haven’t been hit by the tidal wave yet, while previously considered rock-solid banks and insurance companies all over the continent are fighting for their lives, governments are nationalizing like crazy, and even entire nations are facing bankrupcy? I think it’s safe to say they will feel the sting of the recession soon enough.

But unless I missed them, I haven’t noticed any public (or should I say “leaked”) statements from European VC’s advising their investments to prepare for tough times, nor have I seen many announcements from European startups doing lay-offs or shutting down altogether. The exception proving the rule in this case: Fleck, whose founders put the service up for sale last week, although this decision wasn’t driven solely by the economic crisis as far as I can tell.

I also took note of Martin Varsarvsky subtly criticizing Sequoia, which owns 1% of his company Fon, for not raising any caution flags a year ago when the first signs of a pending recession were already quite visible. He’s also one of the few who publicly states that there have been “painful cost reductions” at Fon, even if they have apparently been dealt with six months ago.

Other than that? Nothing but deafening silence about the challenges ahead and how startups in Europe plan to meet them.

And yet, Max Niederhofer from Atlas Venture recently wrote that he’s seeing “first, quiet shutdowns” - quiet seems to be the keyword here - and that “companies looking for follow-on financing likely won’t get it in the current environment.” Inevitably, the number of first rounds of VC funding and the valuations that come with them will go down in Europe, too. My guess is that the effects for fledgling startups will be less visible in Europe and remain under the radar for some part, but I’m quite sure they will cut just as deep as in the rest of the world.

Article source: Techcrunch