The First Look at How Startups Are Affected by the Coronavirus
In 2008, there was a 40% reduction of venture dollars, and it took about 18 to 24 months to return
In the past four months — since March, the month in which coronavirus has been declared a pandemic — 70.000 startup employees have been laid-off, worldwide. Roger Lee tracks the numbers here. Uber leads the ranking with 6700 laid-off employees (in SF Bay Area), followed by Airbnb, with 1900.
This shows how vulnerable these sectors are. Travel and transportation services can only be produced when the customer is physically present. The same applies to healthcare.
Here, however, the pandemic had a lesser impact, and in some cases, it only raised the demand for healthcare — or pharmaceutical — products.
In consumer discretionary categories, to which transportation and travel belong (as well as finance, or retail) changes in spending appear immediately at the till. In retail or food industries, online services served as a cushion, but they did not compensate for all the losses.
On the other hand, startups selling to human resources, security, legal, IT, and product teams are at the bottom of the list. In these sectors, the sales cycles are slower. It does not mean, however, that they have been spared. Reductions may hit startups in these categories too. There is just some latency attached to it.
Startup layoffs by industry since COVID-19 (Source)
According to Startup Genome, the lockdown has caused for startups two shockwaves: capital shock and demand. According to their latest report, 40 percent of startups are already in the red zone and have three months or less of capital left.
Secondly, the funding process has been disrupted, which only delays the so much needed cash.
And lastly, the VC funding has dropped too. Globally by around 20 percent, and in China, where the virus hit first, by 50 percent. (See here what oversupply of money did to startup ecosystem)
The demand shock was even more obvious. Circa 72 percent of startups have seen a drop in their revenue.
These are only the first months of the pandemic. Some trends emerge, but there is no definite answer to how the Startupland will look like in a few months.
Insights from 2008, 1973, or 1929 crisis are limited, but we should not completely disregard those. History never repeats, but it rhymes.
On the bright side, startups are often positioned better than mature companies because they exist to make things cheaper. They replace old, inefficient systems with new, more automated, fully digital ones.
Those who survive the crisis could be more resistant, as crisis tends to produce more robust companies.
Potential startup founders should notice that during bad times there is often less competition. It does not matter when you do something, it matters who you are.
Apple or Microsoft have been founded in the 1970s, the decade that was severely hit by the oil crisis. Today, they are the most valuable companies o the market (in terms of everything).
This article was originally published on medium.