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High Growth Enterprises can speed-up the economic recovery as well as the green and digital transitions

High Growth Enterprises may help economic recovery after covid crisis and the transition to a green economy and digital economy and help find solutions to climate change
High Growth Enterprises can help to speed-up both the recovery and the transition to a green and digital economy
May 07 2021

The uneven impact of the crisis across sectors may attenuate but not eliminate the disproportionally high contribution of High Growth Enterprises (HGEs) to economic activity.

Indeed, such firms can help to speed-up both the recovery and the transition to a green and digital economy.

However, financing and other unfavourable business framework conditions —especially for start-ups and scale-ups— exacerbated by the economic downturn and reflected in Venture Capital trends, call for measures tailored to their needs to be part of the emergency and recovery-orientated policy response.

High Growth Enterprises in the Covid-19 Crisis Context is a new JRC report that examines the EU economy in the COVID context through the lens of HGEs and firms with high growth aspirations benefiting from venture capital (VC).

It provides a unique overview of the many issues surrounding policy for European HGEs in times of COVID-19 using various complementary datasets. It also contains individual country factsheets – one each per EU27 member state - with figures based on the EU-wide analyses in the main chapters of the report.


Why are high growth enterprises important?

High Growth Enterprises (HGEs) are those where the number of employees grows by >10% per year for three years with at least 10 employees at the start of the period, according to the Eurostat definition.
Compared to other enterprises, HGEs — often highly innovative and technology-based — make a disproportionally higher contribution to job creation and economic growth.

Hence, the importance of their role in recovering economic normality and reversing the negative impacts of the pandemic cannot be overstated.

HGEs are present in all sectors of the economy, though their number, size, and degrees of innovativeness and internationalisation vary geographically and between sectors.

Even though HGEs also suffer disproportionally during economic downturns, they still serve as an important boon to economic activity during crises and boost it further during recovery periods.


What can the reader expect: analyses developed in the report

Rather than just updating the analyses of the first report on HGEs released in 2020, this report develops selective and deeper analyses in tune with current EU policy priorities.

In this regard, the report investigates the impact of the current COVID-19 pandemic on HGEs and on start-up activity. It documents the role of HGEs during previous economic crisis, and sheds light on aspects of digitalisation, eco-innovation and on HGE financing and venture capital.

In doing so, it brings into the picture a range of different data sources, giving priority to up-to-date data over uniformity and coherence of definitions. The resulting trade-off is arguably positive given that policy development should take into account the most recent information however incomplete and fragmented it may be.

The report aims to inform on-going policy development at EU and Member State levels in favour of enterprises that contribute to sustainable economic growth and employment creation.

In particular, on-going work under the European Semester dominated by the response to the pandemic – notably the effort to launch the implementation of national Recovery and Resilience Plans as soon as possible- stands to benefit.

The analyses may also be relevant to the emerging ecosystems-based EU industrial strategy.

Policy-relevant messages

Policy measures that are tailored to the specific profile and needs of existing and potential HGEs will strengthen the role these firms can play in driving economic activity, the recovery process and industrial renewal including the twin transition.

Such measures should be attuned to, amongst other things, changing financing conditions of which the relative decline in early and seed VC financing compared to later stage VC is an indicator.

Furthermore, the positive links between business growth and both eco-innovation and digitalisation can reinforce the rationale for measures targeting existing and aspiring HGEs including the improvement of the relevant framework conditions to support their contribution to the twin-transition.

The long–term importance of HGEs for economic resilience and recovery also calls for measures to strengthen innovation-driven entrepreneurial ecosystems, in order to prevent viable and potential HGEs from succumbing to the corrosive effects of the pandemic which, as underlined by start-up calculator simulations cited in this report, can persist far into the future.

Future research and avenues to explore

  • A better understanding of the heterogeneous impact of the COVID-19 pandemic on potential and aspiring HGEs across countries
  • An analysis of the financing needs for HGEs during times of crisis, including the potential local bias of investors
  • An improved collection of more up-to-date and high-frequency relevant data in order to optimize and better orientate public support to the companies and economic actors most in need.