Earlier this month, a Milwaukee startup made the difficult decision to lay off a portion of its staff after impacts from the coronavirus left it virtually no choice.
Kyle Weatherly and Jesse DePinto, the founders of Frontdesk, which offers short-term apartment rentals for business and vacation travelers, notified 35 employees on April 10 that they no longer had jobs. The decision came after Frontdesk experienced “massive” cancellations in units booked.
In an interview at the end of March, Weatherly said revenue had dropped 60 percent since the coronavirus pandemic started, but still didn’t predict any layoffs to its staff of nearly 250.
“Frankly, what’s the point of surviving this if the soul of your company is gone?” Weatherly said at the time.
But within a matter of weeks, the situation at Frontdesk turned so grim, Weatherly realized he had no other option. Over personal phone calls to affected employees, the founders notified each that they had been laid off. Terminated roles included marketing, sales, market development and unit cleaners. The startup now employs 206 people.
“It was incredibly emotional,” Weatherly said. “These are people that helped build this company and they’re no longer with us. [This] was the hardest thing I’ve done in my work life. But we had the realization that we’re not going to get back to normal. We’re not talking about a three-month blip, we’re talking about a year-long disruption.
“Every industry is really affected by coronavirus, but ours has two features that make us more susceptible,” Weatherly continued.
Not only does Frontdesk rely on a robust corporate travel industry, but it also has high fixed costs as it has to pay rent for each unit it lists on its platform. To date, Frontdesk has raised more than $5 million, but it’s currently raising more funding, Weatherly said. And just days after the layoffs, Frontdesk received a payment protection program loan from the U.S. government under the $2 trillion stimulus plan.
Frontdesk is just one of hundreds of startups across the U.S. that have been forced to downsize amid the coronavirus pandemic. And as budding businesses try to figure out ways to weather the storm, it’s becoming increasingly clear that industry matters.
As people have been mandated to shelter-in-place and businesses deemed non-essential are forced to temporarily shut down, growing a company in the grocery or healthcare industry versus the travel and hospitality industries can mean the difference between chugging along and possibly shutting down.
“I definitely think there is a possibility that startups do end up closing their doors,” said Matt Cordio, the founder of Startup Milwaukee and Skills Pipeline. “But it depends on what industry they’re serving and what stage of growth they are at.”
While companies like Frontdesk in the travel and events sectors struggle during a global pandemic and nation-wide shutdown, other Wisconsin upstarts like EatStreet are thriving.
Because most restaurants are no longer allowed to serve dine-in customers, but can still deliver food, many are using food delivery companies to fulfill orders.
Since coronavirus-induced shutdowns began, EatStreet has seen a 30 to 50 percent increase in business across its 250 markets, said co-founder and CEO Matt Howard. Since the pandemic began, the company has hired more than 250 new delivery drivers, bringing its total to over 2,500 throughout the country. And EatStreet has plans to hire an additional 50 drivers within the next 90 days as it launches in Stevens Point and Plover, Wisc.
Though business is good, it’s also more complicated than ever. To minimize spreading the coronavirus among delivery drivers and diners, EatStreet said many drivers wear gloves and are required to use hand sanitizer between every delivery.
“If you had told me that hand sanitizer was going to be one of my biggest objectives to get in the hands of our drivers just a few months ago, I would have called you crazy,” Howard said. “Everything has changed. Our priorities are different every single day.”
To support EatStreet delivery drivers, which are classified as W-2 employees, the company is providing a two-week paid leave to any that come down with the coronavirus.
And to support its restaurants partners, EatStreet is incentivizing diners to order food through its platform by running delivery promotions and subsidizing delivery fees.
“The best thing we can do for restaurants is drive as many orders as possible to them,” Howard said. “We take a lot of pride in the fact that we get to help restaurants during this difficult time.”
Other food delivery companies have made similar efforts. Chicago-based Grubhub has run promotions, and reduced or eliminated delivery fees, to ease burdens on restaurants. But it also recently announced that it expects profits to dip as a result.
EatStreet, which employs 200 at its Madison headquarters, is fairing well for now, but Howard said he’s anxious about the ability to raise venture capital in the future if the economy continues to worsen and investing slows considerably. Howard said EatStreet was considering fundraising in 2021. It has already raised more than $50 million over four rounds.
“I don’t think we really know the full impact of this yet,” Howard said. “Ultimately, startups don’t really have rainy day funds that protect them through downturns like this. Everyone’s worried about that, including EatStreet.”
Another Wisconsin startup benefiting from operating in an essential industry is Madison-based Fetch Rewards. The company, founded in 2013, makes a mobile shopping platform that gives users rewards for buying grocery brands like Tropicana and Cottonelle.
Co-founder and CEO Wes Schroll said since the pandemic began, Fetch Rewards has seen an uptick in app usage, mainly due to the fact that consumers are buying more products on their grocery trips.
“We definitely saw huge increases of shopping and people are continuing to use the app as loyally as they have before,” Schroll said. “We’re immensely fortunate to be in one of the few industries that while it’s seen fluctuations, is remaining consistent.”
When shelter-in-place orders were becoming the norm in many states and people were panic buying food, toilet paper and other household items in large quantities, Fetch began hearing from its users. Because they were grocery shopping more frequently, some requested that Fetch increase its receipt scan limit.
“Our day-to-day more than ever now is listening to our users and reacting to data,” Schroll said. “People want and need to save money at this time.”
Fetch Rewards is also attracting new grocery brand clients on the B2B side because many want access to the startup’s supply chain data, Schroll said.
“We have full confidence that we’ll weather this storm and probably come out stronger because of it,” he added.
Even still, Fetch Rewards is striving to operate as leanly as possible and not overspend. In October, the startup raised $25 million, bringing its total funding to more than $50 million.
As growth-stage, venture-backed startups, Fetch Rewards, EatStreet and even Frontdesk have advantages that many of Wisconsin’s very early-stage companies do not.
Xena Workwear, which launched just last year to make steel-toed boots for women, has experienced particularly difficult times as it faces demand shortages. And compared to some of its startup peers in Wisconsin, Xena has only raised $750,000.
Ana Kraft, the co-founder and CEO of the Milwaukee-based company, said sales dipped about 50 percent since the coronavirus pandemic began because would-be buyers aren’t currently working due to temporary closures of manufacturing facilities across the country.
“Corona hit us and slowed everything down,” she said. “During the first couple days, it was paralyzing. We felt like there wasn’t much we could do.”
The shoes, which retail for $170 to $180, are designed for women working in manufacturing and engineering that want a stylish work boot alternative to what’s currently on the market. Xena, which employs only three full-time people, was typically manufacturing about 500 pairs of shoes per month before coronavirus started and sales were increasing by 40 percent month-over-month.
“Before this happened, every week was our best week,” Kraft said. “We were doing really well, but this whole situation completely changed our projections.”
Midwest venture capital firms, including Chicago’s Hyde Park Venture Partners and Minneapolis’ Arthur Ventures, have raised $100-million-dollar funds just within the last six months, which could be good news for local startups looking for bridge investments.
However, some of that money is likely being reserved to prop up firms’ current portfolio companies as they work to survive the COVID-19 crisis, said Troy Vosseller, the co-founder of Wisconsin startup accelerator gener8tor.
“There has been an [increase] up until now of new funds being raised and established, and hopefully they are sitting on some dry powder to be invested,” Vosseller said. “But naturally, there will be a slowdown.”
A potential slowdown in Wisconsin venture capital activity isn’t quite evident yet. PitchBook data published this month showed that $72 million was invested into Wisconsin startups during the first quarter of 2020, up from the $55 million invested in Q1 of 2019.
But funding across the Great Lakes region, which PitchBook classifies as including Wisconsin, Illinois, Indiana, Michigan, Minnesota and Ohio, was down in the first quarter of 2020 compared to the same time period in 2019. In Q1 of 2020, Great Lakes startups raised only $856 million, compared to the $1.18 billion raised in Q1 of 2019, reflecting a broader decline of dollars invested across the U.S.
Giving advice to gener8tor’s portfolio companies, Vosseller says he emphasizes cutting extra costs, being flexible with customers and considering salary reductions where possible.
“For the vast majority of companies, they are negatively impacted by the COVID-19 pandemic,” Vosseller said. “The winning strategy here is not to just survive through this unfortunate time, but [to] adapt to it in a way that better positions you and your foundation for the long term.”
