This week, Startup Genome has released a report looking at the global impact of coronavirus on startups. The report found that 41% of startups globally are threatened in what we call “red zone”: they have three months or less of cash runway left.
Many very young startups live with only a few months in cash – 29% were in that situation already before the crisis—but the crisis put 40% more of them in that precarious position. Focusing on startups that have raised Series A, B, or later rounds, 34% have less than 6 months’ worth of cash — a danger zone in the current situation where fundraising is difficult.
What else did this Startup Genome report find?
Since the beginning of the crisis, 74% of startups have had to terminate full-time employees. 39% of all startups had to lay off 20% or more of their staff, and 26% had to let go 60% of employees or more. 74% of startups saw their revenues decline since the beginning of the crisis.
At the same time, a small minority of companies are actually experiencing growth. 12% of startups have seen their revenue increase by 10 percent or more since the beginning of the crisis, and one out of every 10 startups are in industries actually experiencing growth.
Nonetheless, tech startups are uniquely situated to continue operating even in lockdown scenarios. Unlike many traditional businesses, 96% of startups responded that they have continued working during the crisis, even if there is significant disruption.
According to founders and startup executives, the top four most helpful policy responses for their businesses would be, in order:
- Grants to preserve company liquidity (29%);
- Instruments to boost investment (18%);
- Support to protect employees, like payroll supplementation grants (17%); and
- Loans to preserve company liquidity (12%).
What do these findings mean?
LaunchVic CEO, Kate Cornick said, “COVID-19 is having a deep impact across the economy and the unavoidable truth is startups will fail during this period.”
“However, evidence from previous economic downturns illustrates that startup ecosystems play an important role in economic recovery and for that very reason it has never been more important to embrace innovation, foster entrepreneurs and support the role of the startup ecosystem.
“In the last month, my conversations with founders, ecosystem infrastructure providers and investors have revealed a steely determination and a few silver linings.
“Accelerator programs that have moved online are reporting better access to mentors and speakers; online selection processes are revealing unconscious bias meaning greater accessibility for some startups; and strong application interest as startups look for opportunities to continue building their product while regular business is disrupted.
“While we are acutely aware of retractions of investment capital, we have spoken to a range of angel investors who are still vetting deals, and there is still money that good companies and importantly good founders will be able to capture.
“There’s also a huge opportunity for emerging entrepreneurs at the moment – as we know that adversity can bear opportunity and this is something LaunchVic is hoping to foster with our pre-accelerator funding round that is open.
“Having the right support mechanisms in place for the Victorian startup ecosystem will help Victoria create the next generation of scaling startups that arise from these difficult times.”