While Europe’s fastest-growing startups boast impressive revenue figures, our analysis reveals escalating risk alongside rapid expansion. These companies have achieved major milestones, proven demand, and secured substantial funding, but some are pushing their financial boundaries to precarious levels.
Indicators of rising risk
- Negative cash flow: more than half (59%) of Europe’s fastest-growing startups reported negative cash flow in their latest financial year, burning cash faster than generating it.
- Runway concerns: If this trend persists, a fifth (21%) of these high-flyers risk running out of cash before the end of 2025. B2B SaaS, consumer tech, and health tech are particularly vulnerable: more than a third of startups in these sectors could run out of cash this year.
- Increased leverage: Europe’s fastest-growing startups are more leveraged than at any point in the period we studied. The combined debt-to-equity ratio doubled to 9.32 in 2023. More than half (54%) of the startups now operate in a high-risk leverage zone.
- Debt-to-assets ratio rise: After improving, the debt-to-assets ratio climbed to 0.91 in 2023, with 24% of startups exceeding the healthy threshold.
- Negative equity: 10% of startups reported negative equity in 2023, a sharp reversal of previous improvements.
- Declining current ratio: The average current ratio fell to 1.10 in 2023, below the healthy 1.5 benchmark, indicating potential liquidity challenges.
Sector-specific vulnerabilities
- While all sectors showed strong revenue growth, most struggled with cash flow. Healthtech was particularly impacted.
- Deeptech startups demonstrated better cash flow management and lower leverage.
- Consumer and climate tech sectors are showing the highest levels of high leverage.
Bottom line
These warning signs highlight the delicate balance between growth and financial stability. While rapid expansion is prized among startups, it must be managed prudently.
Startups need to prioritise cash flow management, avoid excessive debt accumulation and maintain a healthy debt-to-equity ratio. It is prudent to diversify funding streams and explore alternative options beyond venture capital, particularly non-dilutive sources.
Europe’s high-growth startups are navigating a challenging economic landscape. While their achievements are undeniable, prudent financial management is now more critical than ever to mitigate risk and ensure the long-term success of these promising companies.
Download Channel’s report — Financing Growth in Europe’s Innovation Economy — to discover more.
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