There is one category, in the vast constellation of business outfits, that has a particularly hard time in an uncertain economy. We are talking about startups, which, like the seedlings of budding entrepreneurship, need specific conditions to flourish – one of those conditions being a safe and reliable economic, financial, and social environment. How are Italian startups coping with the Covid-19 pandemic?
The forgotten category
Startups are, at the best of times, strange animals. They don’t fit in the same categories as most other businesses. They are not registered as companies in the same tier as SMBs or major holdings and, at times like this, lurking in bureaucratic limbo is particularly dangerous. First, because they don’t have access to the loans granted by the Italian government’s stimulus decrees and secondly because their respective markets might be shrinking. There are over 13k startups in Italy, employing over 60 people, and about a fifth of them was founded by young entrepreneurs. Most crucially, the vast majority of startups operate at a loss during the first years of their existence – they are seen as an investment – which cuts them out of most government-funded rescue programs.
Why are Italian startups in danger?
Some might ask what the real risk is, for a company already operating at a loss. The key to startup success, in any country, is the possibility of converting that loss into profit, once the product is developed, the market is primed, and – hopefully – the demand is high enough to sustain a scale-up. A shrinking economy takes away two out of these three conditions. Even assuming that the startup can keep on developing and perfecting the product or service that it is providing, no scale-up is going to happen if the market has receded away from that particular field of interest and there is little-to-no demand for it. In the current situation, it is estimated that at least 40% of startups will not survive the critical phase
What Italian startups are asking
Predictably, Italian startups are in turmoil and fear they will be forgotten, in the government’s effort to steer the country through this unprecedented crisis. They are teaming up to have their voices heard and demanding help from the Italian government, specifically asking that this help be swift and certain and that it include, among other things, access to loans, financial support for innovative SMEs, significant tax deduction for all investments in SMEs and start-ups (in order to encourage investors who might be on the fence), and the suspension of taxation and VAT payments throughout 2020. Whether or not their wishes will be granted, of course, is a different matter. At this stage, most startuppers are striving to draw attention to their predicament. This might just be the crisis that redefines the role of startups within the fabric of Italian society.