Coronavirus crisis led to a drop in start-up activity in Germany in 2020

• Number of start-ups fell by 11% to 537,000
• Full-time start-ups dropped to a new low of 201,000
• Share of opportunity start-ups grew to 80%

A preliminary evaluation of the KfW Entrepreneurship Monitor shows that start-up activity in Germany declined in the coronavirus year 2020. Compared with 2019, 68,000 fewer persons became their own bosses, launching 537,000 new businesses. The decrease was a good 11%, with both full-time and part-time entrepreneurship dropping significantly. The number of full-time start-ups fell by 12% to 201,000 (-27,000), that of part-time start-ups by 11% to 336,000 (-41,000).

After the rise in start-up activity in 2019, the year 2020 actually showed promise of further growth. The rate of start-up plans, an important indicator of start-up activity in the subsequent year, had increased noticeably. The initially positive outlook for the economy and labour market actually gave reason to hope for more vigorous start-up activity in 2020. But the outbreak of the pandemic dashed these hopes. “The outbreak of the coronavirus crisis was a game changer for many start-ups. Containing the pandemic has called for tough measures that can hardly be planned, creating high economic uncertainty. In this environment, many potential entrepreneurs have put their foray into self-employment on hold. In 2020 the entrepreneur rate dropped to 104 new businesses per 10,000 persons aged 18 to 64 years,” said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

Contrary to expectations, the worsening of labour market conditions caused by the coronavirus crisis did not lead to more “necessity start-ups”. The reverse is true: The analysis by KfW Research shows that start-up entrepreneurs were more likely to start their own business in order to seize a business opportunity. The share of these “opportunity-start-ups” has grown to 80% (2019: 73%). For one thing, many appear to have had the perseverance to realise their start-up idea despite the coronavirus crisis. For another, coronavirus restrictions have been particularly hard on those sectors in which many necessity start-ups typically occur, such as hospitality and retail. This appears to have made necessity start-ups more difficult in the coronavirus year 2020.

The higher share of opportunity start-ups is also evident in start-up size. The share of solo start-ups with employees rose to 19% (2019: 15%). Takeovers and active participations continue to be relatively uncommon pathways into self-employment. Eight in ten new businesses are started from the ground up.

Note:
The new KfW Entrepreneurship Monitor is scheduled to be published in June 2021. The current preliminary evaluation can be retrieved at www.kfw.de/kompakt

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.