KfW Entrepreneurship Monitor: Number of start-ups dropped to 537,000 in coronavirus year 2020

• Start-ups led by men fell most sharply while female start-up numbers remained steady
• Coronavirus crisis put an end to 56% of young start-ups
• Start-up year 2021 likely to benefit from start-ups put off in 2020

In the shadow of the coronavirus crisis, fewer people started a business last year than the year before. According to the representative KfW Entrepreneurship Monitor, the number of full-time start-ups slid to a new low of 201,000 (-27,000 or -12% on the previous year). Part-time start-up numbers were also down on 2019, dropping to 336,000 (-41,000 or -11%). Overall, 537,000 people ventured into self-employment in 2020 (-68,000 or -11%).

The main cause for the decline was a drop in start-ups led by men. Their number fell to 332,000 in 2020 (-58.000), while the number of new female entrepreneurs remained almost steady at 205,000 (-10,000). Start-ups led by women thus accounted for 38% of all businesses newly founded (2019: 36%). This is a surprising finding as studies revealed that self-employed women were hit particularly hard by the negative consequences of the coronavirus crisis and struggled more often with turnover losses, existential worries and declines in living standards than men. However, aspiring female entrepreneurs appear to have adapted to the new crisis conditions faster and ultimately realised their start-up plans more often than men. This is supported by the fact that female entrepreneurs adapted their business models more often than male entrepreneurs last year (52% vs. 39%).

In the KfW Entrepreneurship Monitor, KfW Research also analysed the discontinuation rates and motives last year. The coronavirus crisis clearly had an impact. In 2020, roughly four in ten entrepreneurs closed their business less than five years after opening up. As in the past, businesses were often closed for personal reasons such as family pressure or a more attractive job offer, but more than twice as many businesses were closed as in 2019 (40%) because they were unprofitable. Overall, the coronavirus crisis was decisive in just over half (56%) of business closures in 2020.

At the same time, more people were motivated to seize a business opportunity in the coronavirus crisis year 2020. The share of these opportunity-start-ups grew by 80% (2019: 73%). Only 16% of all businesses were started for lack of better income alternatives (2019: 23%). Therefore, it was primarily entrepreneurs with a high level of perseverance and optimism who put their start-up project into practice. On the other hand, short-time work has probably contributed to the fact that not more people became self-employed out of necessity.

The existential threat which the coronavirus crisis created for many self-employed persons evidently deterred many aspiring entrepreneurs last year before they even developed any start-up plans. Planning activity dropped accordingly, with the share of people of working age (18 to 64-year-olds) with start-up plans falling from 6.4% in 2019 to 4.4% last year. At the same time, the share of those wanting to start their business activity within the next 12 months dipped from 3.2% to 2.6%. But it is only at first glance that the share of prospective entrepreneurs in 2020 is a negative signal for start-up activity in 2021.

“After the coronavirus-induced slump in start-up activity in Germany, 2021 promises to become a good year for start-ups. The cyclical upswing will provide a tailwind and the labour market is also likely to have a positive impact on start-up activity”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Besides, many prospective entrepreneurs actually wanted to start their business already in 2020 and only deferred their projects because of the coronavirus crisis. They are far advanced in their planning process and close to implementation. That is also likely to benefit this year’s start-up activity.”

Other key findings of the KfW Entrepreneurship Monitor:

- Innovative start-ups – start-ups with research and development activities – made up 13% of start-ups in 2020, while 24% were growth-oriented start-ups. Internet-based start-ups in which the Internet is a core element of the business reached a share of 31%, and digital start-ups whose offering can be used only through the use of digital technologies rose to 26%.

- Berlin again clearly topped the state ranking. On average for the years 2018–2020, 181 out of 10,000 employable persons started working for themselves in the city-state each year. Brandenburg, which had benefited from above-average entrepreneurial activity in Berlin radiating into the periphery, slipped back to fifth place as a result of the coronavirus-induced decline (104 start-ups per 10,000 people of working age). Hamburg ranked second (129) ahead of Schleswig-Holstein (120). Bavaria ranked fourth (109).

- After a year of coronavirus crisis, entrepreneurs generally judged Germany harshly as a start-up location. The usual scores were given only to free market access (school grade: 2.3), advisory services (2.6), access to public promotional funds (3.3) and credit availability (3.7). The grades given for other factors, on the other hand, were half to one and a half grades lower. Legal regulations (4.3; +1.3), bureaucratic information and reporting duties (4.6%; +1.2) and tax burden (4.4%; +0.8) received the sharpest downgrades. (In Germany the highest school grade is 1 for “very good” while the lowest is 6 for “insufficient”).

The current KfW Entrepreneurship Monitor can be downloaded from www.kfw.de/gruendungsmonitor.

The dataset:

The KfW Entrepreneurship Monitor is a representative telephone survey of the population on start-up activity in Germany which has been conducted annually since the year 2000. It is based on the information provided by 50,000 randomly selected persons domiciled in Germany. It covers a broad range of start-ups: full-time and part-time entrepreneurs, self-employed professionals and business owners, new businesses and takeovers. The KfW Entrepreneurship Monitor thus provides a comprehensive picture of entrepreneurial activity in Germany. To find out more, go to www.kfw.de/gruendungsmonitor.