GDPR Has Chilling Effect On EU Tech Funding: Study

EU technology firms have suffered double-digit declines in venture funding relative to U.S. companies since the GDPR took effect, according to Continental Telegraph, quoting a study conducted by Jian Jia, Ginger Jin and Liad Wagman.

Specifically, the paper documents a 17.6% decrease in the number of EU venture deals and a 39.6% decrease in the dollar amount per deal following GDPR implementation. 

For companies three years old or less, there has been a 19% decline in the number of deals. 

“At our aggregate unit of observation, EU venture funding decreased by $3.38 million at the mean of $23.18 million raised per week per state per crude technology category,” Continental Telegraph writes.

This could lead to a loss of jobs. A “back-of- the-envelope” projection suggests loss of “3,604 to 29,819 jobs in the EU, corresponding to 4.09% to 11.20% of jobs created by 0–3 year old ventures in our sample,” it adds. But there could no jobs in data protection, it notes. 

Overall, however, GDPR could have a chilling effect on investment. 

“Our hypothesis is that as GDPR’s enforceability came into place, entrepreneurs and investors both realized the actual compliance and implementation costs, as well as the ex-post implications of GDPR,” Jia, Jin and Wagman write. 

But the authors add several caveats. For one, it may take more time to determine the true impact as investors take a wait-and-see approach.   

“To the extent that capital flows freely across continents, it is unclear whether the reduced investment in the EU may have in tandem translated to additional support for US ventures or that it reflects the reluctance by investors to invest anywhere,” they note.

However, the study seems to support a report done last year by Merrill Corp. GDPR may or may not have slowed down email marketing.

Of 539 M&A pros surveyed in in Europe, the Middle East and Africa, 55% said they had worked on transactions that fell through because of concerns about a target firm’s data practices and GDPR, that report states.




2 comments about "GDPR Has Chilling Effect On EU Tech Funding: Study".
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  1. Robin Caller from LOLA GROVE, January 7, 2019 at 5:37 p.m.

    That's fascinating  We declined investment in our software, which was specifically designed to help meet the requirements of the GDPR, on the basis that the market was shifting towards us.

  2. Paula Lynn from Who Else Unlimited, January 7, 2019 at 5:47 p.m.

    They will figure this all out and quite possibly there is a big sigh of relief by the investors who feel forced to waste their money in all of the start-ups in which they really don't have faith. Need is the mother of invention and they will find more Mothers of Invention where to spill so much money the top heavy can't spend it all fast enough. 

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