18th May, 2020
COVID-19 is having an impact on startups around the world, according to recent research. Entrepreneurs are best advised to consider their options carefully in the months ahead.
More so than many other business sectors, the global startup ecosystem has been hit hard by the economic downturn caused by COVID-19.
Startup Genome, an organisation that works to enhance startup ecosystem performance around the world, recently released a report into the impact that the novel coronavirus has had on global startup ecosystem.
The report was based on a survey that had attracted 1070 respondents across 50 countries. Questions were divided into five different categories, including the state of the startups’ capital, talent and jobs, market, operations and management and access to government assistance.
In the report’s executive summary, Startup Genome explained that one of the main reasons why it launched this survey was to offer the various governments around the world with “actionable insights” to support and stimulate their respective ecosystems.
Across all five categories, the report’s findings were undeniably staggering. Aside from the overwhelming majority of respondents having experienced some sort of hardship, the report showed that an alarming number of respondents were going through a severely challenging time.
Here are some of the key statistics from each of the five categories across the entire report.
In response to its first question of how many months of runway the respondents had left as of the day they completed the survey, more than 60 percent of them claimed to have less than six months to go until their capital dried out. Of these 60 percent, 10 percent were reported to have less than one month.
The report highlighted that according to its data, the number of startups with less than three months of runway was up by 40 percent since December – showing that despite how common it is for startups to operate with little runway, the pandemic was clearly impacting their ability to stay in the game.
When it came to the status of investment term sheets that had been signed or unsigned before the crisis, 44 percent of respondents said that they were experiencing delays, 19 percent revealed that their term sheets were derailed, and nine percent claimed that their investors were unresponsive.
Arguably the most staggering of all the statistics gathered, the report found that 95 percent of the survey’s respondents had made adjustments to their labour costs.
The country that had been hit hardest by lay-offs of full-time employees was the US, with 84 percent of respondents from that region claiming to have let go of at least some of their full-time workers.
Significant drops in demand across the vast majority of industries has resulted in revenue nosedives for many businesses – startups included. The report highlighted this by stating that three of every four startups work in industries that have been severely impacted by the pandemic.
According to the report, 74 percent of respondents had experienced a decline in revenue since the beginning of the crisis. Of that 74 percent, an alarming 16 percent had seen their revenue drop by more than 80 percent.
On a more positive note, 22 percent of respondents marked themselves down to have either experienced growth or remained unaffected since the start of the crisis.
Startups around the world have also been reducing management and operational costs since the start of the crisis. The report found that 42 percent of startups had cut costs by more than 40 percent, and one in every 10 took extreme measures by cutting costs by over 60 percent.
Surprisingly enough, despite the need to significantly reduce operational costs, 96 percent of the survey’s respondents said that they were continuing to operate from home – notwithstanding the significant disruption.
The final section of the report focused on government stimulation and found that 60 percent of startups are receiving (or expecting to receive) government assistance. Of those companies, the vast majority were still looking for additional government assistance.
When asked what type of assistance would be helpful, almost a third of the respondents said that government grants to preserve company liquidity would go a long way.