Article: Can startups survive the impact of COVID-19?


Can startups survive the impact of COVID-19?

Over the last few months, the startup space has become a casualty-strewn landscape as funding runs low for many. Is there any strategy that will work to help startups survive till the end of the COVID-19 crisis?
Can startups survive the impact of COVID-19?

It's an exceptionally difficult time to be an entrepreneur. Already, thousands of startups around the world may be folding up or have already folded: back in March, a survey by research and policy advisory organization Startup Genome found that 41 percent of startups globally have three months or less of cash left, and despite the occasional headlines about successful startups—almost all tech firms—raising Series A, B, or C funding, venture capital is becoming scarce. One estimate by Sifted suggests that even for successful funding rounds, the amount raised has dropped by 10-30 percent. And Startup Genome predicted that global startup investment might plunge by as much as US$28 billion this year, even before factoring in the difficult business environment that will kill off many young companies.

Is there anything startups can do to improve their chances?

Every recommendation that might work has already been made in the last few months: holding onto cash reserves, reducing as much spend as possible, cutting head count, all to extend their financial runway. However, these are internal measures, and they can only bring a struggling business so much further.

The alternative, which might help the business to survive if not quite thrive in these times, is to look outward at what the world needs and pivot the business to become relevant to those needs. Claus Karthe, the co-founder and CEO of startup accelerator German Entrepreneurship Asia, put it bluntly: "Some startups will not survive this crisis, and those are probably the startups whose business model was maybe a little questionable, and which were living off the exuberance of venture capital money."

Instead, he suggested that the startups that will come out of the crisis intact are more likely to be "frugal but also very adaptable, listening to their clients and trying to find out what they need."

So how can startups find ways to be relevant?

Businesses in certain sectors are at a clear advantage. Healthcare is one such: an immediate need faced in many countries is to prevent the healthcare system from becoming overloaded, and unsurprisingly large amounts of funding are flowing towards many medical and healthcare startups. For instance, Cole Sirucek, the co-founder and CEO of healthcare network DocDoc, told People Matters that the use case for telemedicine is likely to vastly expand within a short period of time, especially as specialists increasingly adopt it.

Tech startups that deal with data and IT services will also find it easier to pivot, or even to put their existing technology and capabilities to use filling the market gaps created by COVID-19. Contactless payments and online financial services, for example, have taken off along with supporting services such as cybersecurity. One fintech startup, contactless currency exchange service Fincy, told People Matters that they are actually expanding and hiring despite the downbeat economic outlook because the demand for their technology has shot up.

But what about those startups in less advantageous sectors?

Not every startup will be so well positioned in the market, nor will they have technologies that can be pivoted to meet the needs of this pandemic period. Instead, one strategy businesses can follow is to reach out and find partners who do have the positioning or the technology on hand to be relevant, and try to work with these other businesses.

Alternatively, they can reach out to large corporations that have the resources to ride out the crisis, appealing to these potential customers for support in the form of purchasing their products or services. For both of these strategies, startups may be able to turn to government assistance, less for funding than for networking; more importantly, they can and should turn to their investors to help them make these connections.

Stay with your investors, so they can stay with you

Most of all, startups need to communicate their strategies to their investors: how they are planning to extend their financial runway, what they are doing to adapt and pivot the business, and what help they need. The majority of investors, after all, are as keen to see the startup survive as the founders themselves are, and can offer various forms of support that go beyond the financial.

"If startups have been smart in bringing on investors who can add value to the business beyond investment dollars, they should be reaching out to their investors with specific challenges that their investors can potentially help with," advises angel investor and entrepreneur Tobias Berger.

He told People Matters: "Investors generally invested because they believe in the business and the team...they definitely want to know that the founders are doing whatever they can and leveraging all available resources to ensure the survival and success of the business."

At the end of the day, though, as a second wave of COVID-19 infections threatens and economic recession follows, the only thing that is certain for the majority of startups is that survival will be difficult. It takes a great deal of optimism to begin a business; it will take even more of that same optimism to ride out this crisis.

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Topics: Entrepreneurship, Funding & Investment

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