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Is the GDPR Causing a Fall in Venture Capital Investment?

The GDPR may be causing a “double-digit reduction in venture capital financing for European startups relative to US companies,” according to a recent study.

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The GDPR may be causing a “double-digit reduction in venture capital financing for European startups relative to US companies,” according to a recent study.

So far, all the studies conducted on the impact of the GDPR (General Data Protection Regulation) had focused on its adoption rate (much lower than desirable, as shown by the increasing fines for non-compliance) or in the billion-dollar business that has been generated around this regulation. However, there is a worrying aspect that has barely been analyzed: its consequences on venture capital investment.

In that sense, a report by the experts Jian Jia, Ginger Jin and Liad Wagman, collected by Continental Telegraph, explains that the GDPR may be causing a “double-digit reduction in venture capital financing of European startups compared to US companies ” Specifically, the study shows a fall of 17.6% in the number of financing operations and 39.6% in the total amount of these financing rounds in 2018, after the implementation of the GDPR.

Although it is difficult to separate the impact of this regulation from other negative factors in the Old Continent (such as political instability or ‘brexit’), analysts believe that it is more than proven that the GDPR is a deterrent to investment in the innovative ecosystem. European. “Our hypothesis is that when the GDPR was implemented, businessmen and investors realized the real costs of implementation and compliance, as well as the implications of the GDPR,” write Jia, Jin and Wagman.

This could lead, in turn, to a loss of jobs. A projection from this same source suggests a loss of “3,604 to 29,819 jobs in the EU, which corresponds to 4.09% to 11.20% of jobs created by companies from 0 to 3 years in our sample,” reads the document.

“To the extent that capital flows freely across continents, it is not clear whether the reduction in investment in the EU will have translated into additional support for US companies or reflects the reluctance of investors to invest in anywhere.”

The analysts admit.

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