Whether it’s capital, talent or operations, nearly every startup has been affected by the economic fallout of the COVID-19 pandemic. And a new report shows that amid the current market upheaval and future uncertainty, startups around the globe are already struggling.
Between March 25 and April 17, policy and research organization Startup Genome surveyed more than 1,000 founders from 50 countries, spanning nearly every continent about how they have been impacted by the current crisis, as well as their future outlook for its "The Impact of COVID-19 on Global Startup Ecosystems: Global Startup Survey."
“As our world is shaken in the most dramatic way imaginable, it is time for our global startup community to get closer, support, and learn from each other,” Startup Genome wrote on its website. “With COVID-19, not only is the economic crisis sudden, the human impact is also horrific.”
According to the report, market revenue and staffing have been the areas where most startups have taken a hit. Globally, more than 74% of startups have seen revenue declines, with B2B businesses bearing the majority of the weight. In addition, 74% of the startups surveyed have had to lay off full-time employees. However, the report notes that when that number is extended to part-time and contract employees, nearly 95% of companies have reduced labor costs in some way. It also notes that startups in the U.S. have made more layoffs than Europe, likely due to labor regulations and payroll protection programs.
Capital was another area of concern for many founders. The report states that about 40% of startups globally are likely to run out of cash runway within the next three months. Startups in the U.S. were faring slightly better than counterparts in Asia and Latin America, where many respondents reported enough runway for about four to six months. It notes that companies that have raised Seed to Series B and higher rounds are better positioned than others, since about 72% of founders said they’ve had term sheets either delayed or canceled since the outbreak of the crisis.
And since the crisis is still evolving and changing rapidly, the future for many startups remains uncertain. However, the report does note that some startups, especially those in tech and B2C industries, will likely be able to weather the crisis more easily than others, and that there are still startups hiring and seeing increases in funding and revenue.
“As COVID-19 continues to trigger more lockdowns and quarantines, the economic toll, on top of the more dire human life toll, will be tremendous,” Startup Genome wrote.
In North Texas, the full effects of the pandemic on the startup ecosystem has yet to be seen. In Q1, startups in the DFW region raised a total of $147.8 million across 40 deals, according to the Venture Monitor Report by the National Venture Capital Association and PitchBook, a decline from the nearly $168.5 million across 46 deals in the first quarter of 2019.
Overall, many startups are looking to governmental and other community aid to stay afloat during the crisis. Many of the respondents to the survey said grants to preserve company liquidity, instruments to boost investments, and support to protect employees were the areas they would most like support in. Others said they would like loans or ways to support increased demands and defer costs.
“Considering this scenario and the fact that startups are the number one engine of job creation in our modern economies, it is imperative for governments and private leaders to learn from each other and act in a concerted fashion,” Startup Genome wrote. “New and young companies create most of the net new jobs in the economy.”
