KfW/ZEW-Gründungspanel – Little activities by young firms, but positive outlook for 2009

The financial and economic crisis also affects start-ups and young firms.48 percent of young firms in Germany stated that they were affected by negative consequences of the economic and financial crisis in the early summer 2009. The order situation (41 percent report less orders) and turnover and profit situation (43 percent and 40 percent report a worse situation) were particularly affected. These are the findings of the KfW/ZEW-Gründungspanel, which tracks start-ups from their foundation and reports their development over time. The findings of a second survey including start-ups of the years 2005 to 2008 were presented today by KfW, ZEW and Creditform representatives in the KfW Bankengruppe in Frankfurt.

The analysis focuses on the young firms' development between 2007 and 2008. "Young firms in Germany have significantly reduced their economic activities in 2008. Start-ups employed less new employees and their innovation activity declined in comparison to 2007", said Dr Axel Nawrath, member of the Managing Board at the KfW Bankengruppe. The survey took place between May and August 2009. 73 percent of start-ups, especially start-ups from 2008, expect that their profits are going to improve in the full year 2009. "Young start-ups and particularly those founded in 2008 assess their economic situation better for 2009. I hope that this optimism is going to be proved right by respective developments. The KfW Bankengruppe is still going to be a reliable financing and advisory partner for start-ups and young firms", says Dr. Nawrath.

The analysis in detail

Employment in young firms

In 2008 start-ups created about 410,000 full time jobs. This is a decline in employment of 110,000 jobs compared to 2007. The decrease is due to continuous declining start-up activities in 2008 and the smaller size of new firms with on average two full time jobs (including the founding person). In 2007 start-ups had 2.5 full time jobs. "On average young firms, which were successful in their first years in business, grew in 2007 and could afford new employees. However, 44 percent of new firms did not grow and did not have any new employees beside the founding persons four years after their foundation", says Dr. Georg Licht, Head of the ZEW Research Department "Industrial Economics and International Management".

Innovation activities of young firms

A total of 16 percent of start-ups founded in 2008 have introduced a new product or service as the first firm on the market. Compared to 2007 this is a decrease of three percent. The declining innovation activities of young firms are reflected in the percentage of young firms with research and development activities. In 2007 there were 16 percent of young firms; in 2008 it was only 12 percent. "Firms founded in the last year are less innovative than those founded the year before. Reasons for this decline are worse business outlooks and worse terms of financing", says Prof. Dr. Helmut Rödl, member of the general board of Verband der Vereine Creditreform e.V and deputy chairman of Creditreform AG.

Investment and financing activities of young firms

The majority of young firms invested less than EUR 10,000 in 2008. 22 percent, however, invested more than EUR 50,000. About 70 percent of firms continuously invested in the development or renewal of their capacities during their first years after their foundation. 76 percent of investments in firms founded in 2008 were financed by external funds of the founder or external investors. Young firms can first have recourse to their own funds from profits or retained earnings after a couple of years. About a quarter of firms state that they cannot realise the planned investments for 2008 to the whole extent. "Main reasons for the change in investment plans are insufficient financing and worse business outlooks. Especially innovative and recently founded firms report financing difficulties", says Dr. Norbert Irsch, chief economist at the KfW Bankengruppe.

KfW/ZEW-Gründungspanel

KfW Bankengruppe, Centre for European Economic Research (ZEW) in Mannheim and Verband der Vereine Creditreform have created the unique database KfW/ZEW-Gründungspanel in the last few years. This database tracks the development of newly founded firms over a couple of years and provides information on firms and persons. The annual sample of about 6,000 firms is based on start-ups active in the economy, i.e. new firms registered by Creditreform, which are either in the commercial register, have had recourse to outside capital, credits or similar funds, or were included in the economic process in any other way. The sample complexity makes sector-specific analyses possible for small but economically significant groups of technology intensive start-ups.

In 2009 there is a first resurvey of young firms.