Coronavirus Footprints

When the COVID-19 pandemic appeared in the global stage earlier this year we covered it in an article titled “The Confined Startup” advancing the impact of the crisis on the life of startups. As predicted on the one hand this has been a turnkey event for the era of “growth at all costs”, and on the other hand the disruptive role of technology across industries industries has been enhanced and digital startups have thrived, even accelerated, while others associated with traditional sectors now face secular declines, with structural transformations ahead.

A clear bifurcation has emerged. In both cases, entrepreneurs are working to draw the right lessons from the early months of lock-downs in order to help startups emerge on the other side still intact, and ideally stronger. Examining who is winning and who is struggling — and what that bodes for the future — is now one of the most important conversation in venture capital.

For that purpose we were intrigued to see if it was possible to elucidate the impact of the virus in different industries performing forensics on public data information. With those questions in mind we turned to Sofia, the advanced business intelligence and analytics platform that we use daily to manage Conexo’s pipeline.

By plugging into a series of public and private data sources, Sofia aggregates information and accomplishes three key complementary deal flow functions:

• First, it helps discover new investment opportunities immediately as their come online, classifying them and moving them into incubation.
• Seconds, it assists in the passive follow-up of a series of metrics indicators of a wide range of maturing startups and triggers a signal when a startup reaches an interesting growth trajectory to move it into an active stage.
• Third, it allows to incorporate other internal company information and benchmark it to sector and industry averages in support of the deep dive performed by human analysts.

What we did for this study was to look at the average employee growth, as reported in the LinkedIn profiles of the startups followed by Sofia (4,000+ companies in Spain and Portugal, the core market for Conexo), broken down by sector of activity. This is the distribution for the three-month period from January to March 2020:

How to read this? For example from January to March, startups in the Real Estate & Property Management sector grew on average 10% in employees. Comparatively, this is the distribution for the three-month period starting in April and ending in June 2020:

The effect of the virus is stark and clear:

• In general, there is less growth across categories. Please note that employee information as reported in LinkedIn does not have the same elasticity in both directions: people that have been warned or let go do not have an interest in updating their profile at least until they have found a new employment, and therefore they move down slower than they move up. On that note the rapid change shown is specially relevant.
• There are clear losers as we would expect: Travel & Leisure, Retail Commerce and Media. The effect on Media could be explained by the fact that this category also encompasses marketing activities in general, and while online media consumption has grown during the confinement the advertising budgets have plummeted, which had companies adjusting staff to the uncertain immediate future.
• Conversely, there are clear winners: Labor & Jobs, Food & Agriculture and Healthcare & Biology reap the biggest gains, well in line with the predictions, and we also see consolidations on sectors that were already on a positive growth trajectory, namely Transport & Logistics and Telecommunications.

Furthermore, it is somewhat shocking to see the sector of startups that work with the Government ballooning from a 1% to a 40% growth in just three months. The public sector has without any doubt a very important role in managing the crisis, but it is also very important that function is only temporary instead of creating further dependency that could stifle the once vibrant South European startup ecosystem.

Finally, if you are interested on reading about a more optimistic view of the pandemic, please check this article “Thank you, Coronavirus”.

Stay safe and stay positive!