The KfW/ZEW Start-Up Panel Economic tailwinds not leading all to fly high

• Start-ups smaller than in crisis year 2009
• Young entrepreneurs benefit more than start-ups from posi-tive financing environment
• Clear majority of young entrepreneurs plan to increase sales in the next three years

The strong economic growth in 2010 and the positive job market have affected economically active start-ups and young entrepreneurs differ-ently: In 2010 such start-ups were founded more often than probably would have been the case during the crisis due to lack of prospects of success. These start-ups were less innovative, had less sales and cre-ated fewer jobs than start-ups in the year before. The start-ups founded before or during the financial and economic crisis benefitted from the recovery. These are the main results of the KfW/ZEW Start-Up Panel presented today in Frankfurt by Dr Norbert Irsch, Chief Economist of KfW Bankengruppe, Dr Georg Licht, Head of Industrial Economics at ZEW, and Michael Bretz, Head of Economic Research at Creditreform.

Despite the good economic situation, start-ups created about 90,000 fewer full-time equivalent jobs (incl. the entrepreneurs) in 2010 than in the previous year. In total about 460,000 jobs were created. "Established companies tend to offer great job security and higher wages. Therefore, newly founded enterprises were less attractive to job seekers last year. For start-ups it may have been more difficult to find qualified employees for their companies", said Dr Georg Licht.

These smaller-scale dimensions were also reflected in sales figures: In the first year of their existence, start-ups on average achieved sales of EUR 144,000, while in the previous year it was still EUR 199,000. In ad-dition they were less innovative: Only 12% of start-ups in 2010 started their business activity with the introduction of a new product, while in the crisis year 2009 this figure was still 16%. Based on the favourable macro-economic demand situation, many of the newly founded enterprises probably had expected to also win over new customers with proven products.

In contrast to the start-ups, enterprises in the second through fourth year of business profited from the economic recovery. They showed higher sales than companies of the same age one year earlier (average sales 2010: EUR 355,000, 2009: EUR 300,000) and were able to create jobs at a similar pace as companies of the same age a year earlier (average number of full-time equivalent positions by end of 2010: 3.6; 2009: 3.5). However, the enterprises in the second through fourth year of business reduced their innovation activities and on average invested less for re-search and development (2010: EUR 33,000, 2009: EUR 41,000)

The investment climate for young entrepreneurs has improved slightly in 2010 compared to the previous year. More enterprises in the second and fourth year of business made investments (2010: 64%, 2009: 54%), even if they did not increase investment volumes compared to companies of the same age in the previous year (median EUR 10,000 respectively). "In order for young entrepreneurs to be well prepared to face the future, in-vestments are required to increase their capital stock," said Michael Bretz. "Therefore it is good news that in 2010 young entrepreneurs made greater investments and ensured a positive boost to their markets."

As expected, the financing difficulties of the past year have decreased thanks to the economic recovery. In particular the older start-up cohorts less often had problems attaining external funding. As a result, the share of enterprises in the second and fourth year of business reporting financ-ing difficulties declined by 4 percentage points to 12%. On the other hand, in the past year start-ups complained of financing problems to al-most the same degree as in the crisis year 2009 (2010: 23%, 2009: 25% of start-ups).

"Newly founded enterprises have no company performance history and no evidence of market acceptance, making debt financing risky and banks hesitant. This applies irrespective of the economic situation", said Dr Norbert Irsch. "Therefore a reliable promotional offer for start-ups is very important - both in good and in not so good times - in order for new business projects to find appropriate financing."
Over the next three years, 71% of economically active young enterprises are planning to increase sales. However, this estimate is based on the survey period from early summer 2011. This situation may have deterio-rated given the unforeseeable signs for the end of the recovery, however the positive medium-term future expectations of the young enterprises confirm the estimate.

The KfW/ZEW Start-Up Panel

With the KfW/ZEW Start-Up Panel, KfW Bankengruppe, the Centre for European Eco-nomic Research (ZEW) Mannheim and the Verband der Vereine Creditreform are creat-ing a database which, as the first profile data set in Germany, will trace the development of young enterprises for several years starting at their founding and provide a wide range of information on individual businesses and entrepreneurs. The basis for the annually conducted survey of about 6,000 enterprises are the so-called economically active start-ups (=enterprises either registered with the German Commercial Register that have accepted borrowed capital, business loans or similar funds to become established, or are actively involved in the economic process in another way). The start-ups recorded here tend to be larger than those recorded as part of broader start-up activities that include start-ups as part-time businesses and self-employed professionals.

The study "KfW/ZEW Start-Up Panel 2011" is available on the Internet under www.gruendungspanel.de.