Silicon Valley startups, and startups all across the United States and around the world, are faced with unprecedented challenges amid the pandemic – but also opportunities.
Young startups are responsible for 20% of employment and naturally create just under half of the new jobs created in Organisation for Economic Co-operation and Development (OCED) countries – which is why the current investor drought in new enterprises caused by the global pandemic is particularly troubling.
A WSJ report reveals that global private-market funding for startups dropped to $67 billion in the first quarter of this year, down 22% YoY. Silicon Valley itself had lost 25k jobs as of July 2020. Uber, Groupon, and Airbnb – all businesses whose primary business models revolve around people being out and about – were some of the hardest hit.
This spells trouble for early-stage startups as the COVID-19 crisis has made investors understandably risk-averse. The funding trend in Silicon Valley during this COVID-19 year is venture capitalists spending more time shoring up the health of their existing portfolio companies and spreading small levels of investment across a wider variety of companies.
This is problematic for newbie startups who operate in a higher risk environment even at the best of times. Without a steady flow of investment capital, these entrepreneurial enterprises risk their cash flow running dry. Despite this, there is very little in the way of government intervention to inject cash into privately-backed businesses.
Consider the PPP Loan, explicitly designed for independent small businesses, but despite this, also being offered to privately-backed ventures. There is a massive backlash against privately-backed companies who took advantage of PPP Loans, limiting the amount of capital available for independents. Some privately-backed tech startups, such as Glowforge and Lytics, were approved for PPP Loans but turned them down. Even startups that are losing money have felt the pressure not to accept – and several companies who did acquire SBA loans have also since returned the funds.
Despite all this doom and gloom, opportunities abound as well; Established startups that were already poised to serve a housebound-society are doing gangbusters. A joint research project from Harvard, Stanford, the University of Chicago, and the University of British Columbia suggests that 52% of North American startups have either been positively affected by COVID or are still status quo. Many businesses have also risen to face the crisis head-on and pivoted quickly towards short-term initiatives to not only avoid disaster but become even more profitable.
As a result, investment has started to rebound in a big way towards those businesses that serve a pandemic’s needs. While the investor drought was heavily felt over the first 6-months of the epidemic, The value of IPOs in the last month is soaring to new heights approaching the dot com boom.
Here are just a handful of examples of startup success stories in the pandemic:
Retail AI company Inokyo pivoted their visual AI from autonomous checking for retail stores towards contact tracing for workplaces and warehouses.
eCommerce houseplant seller Bloomscape recently raised Series B funding during the pandemic, as housebound Americans flocked online to start an indoor garden in quarantine.
Pynk, an AI stock trading platform, created new algorithms to help investors determine and forecast the economic fallout due to COVID-19 in real-time.
Qventus is a medical software company whose AI effectively manages very manage NYC hospital resources.
What are the primary takeaways here for Silicon Valley Startups?
The need to be agile has never been more critical than now when the virus and economy’s status is fluctuating so wildly. This pandemic will shape how we travel, work, and live for many years – and likely permanently.
Those who can support people during this challenging time with innovative thinking will come out in a strong position on the other side. Perhaps even more importantly – those who can effectively forecast and prepare for what comes next will be in even better shape.
A successful company will maintain company culture, employee morale, and the spirit of innovation despite the work-from-home lifestyle. This needs to occur along with thoughtful cash flow management to keep the lights on and runway planning extensions to consider a limited investment pool.
The saying “Change or Die” has never been more applicable to tech startups and a lesson that all savvy businesses must take to heart.
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