The EU Recovery Fund’s Effect on Startups

COVID-19 has decimated many economies around the world. On a local scale, restaurants, bars, and other SMEs have had trouble remaining open as people continue to quarantine at home. Expanding beyond that, a global shutdown in international travel has ruined the tourism industry. In Europe, where tourism makes up a large part of many countries’ GDPs, The European Union is making efforts have to help alleviate these economic hardships and jumpstart a recovery. In July, The EU announced the EU Recovery Bill, and just last week provided more details around the frameworks and incentives for businesses to receive funding. This bill will potentially have a large effect on startups over the next decade, so I’d like to highlight some of the features and potential outcomes.

The EUR 750B bill has been dubbed the “Next Generation EU” fund and will borrow money from the financial markets and distribute it to member states. EUR 390B, a little over half of the fund, is to be distributed as grants. Member states will need to prepare national recovery plans with specific milestones that show how they will reform their economies to be eligible for a vast majority of these grants. The EU commission will distribute the remainder of the fund as low-interest loans.

The reforms mentioned above will need to align with the EU objectives towards sustainability and digital transformations. Each plan includes at least 37% expenses for climate-related issues and an additional 20% for digital. Pending official agreement, early hints at fundamental changes are focused on sustainable infrastructure overhauls to buildings and transportation, 5G broadband rollouts, digitizing public administration, and modernizing education systems. These types of changes are pertinent in a time when sustainable investments are seeing an uptick in popularity. Not only are companies large and small doing more to align with their customer’s values, but from a purely financial perspective, VC funds and startups focused on ClimateTech are rising in popularity.

The bill has the potential to create many new opportunities for startups and investors. First, technology startups who build the technologies related to the above conditions will access new capital sources. This funding will help in growth efforts and create jobs to keep unemployment in the EU low. Second, the technology itself, specifically around digital infrastructure, will open up opportunities for more efficient work practices, such as a remote workforce. Third, overhauls in education will increase the total European talent pool by teaching individuals critical skills to either be hired by a company or start a new venture themselves.

The bill’s final details are still being agreed upon by EU governments, the European Parliament, and the EU Commission, and won’t become operational until this happens. As it currently stands, the fund will begin distributing money to governments in 2021, lasting until 2023. The EU Commission projects that the recovery effort will provide a 2% boost to economic output by 2024 and create an additional 2 million jobs. In a continent that has seen harsh outcomes from the pandemic, and as global climate concerns are hitting a peak, this bill could be what is needed to move forward into a new digital revolution.

For more information on the Next Generation EU fund, go here and here.

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