The Impact of COVID-19 on the Startup funding: Bright for a few sectors and dark for a few sectors
Recently the COVID-19 outbreak created a large amount of uncertainty in the global economy because of the panic situation, which may lead to a global financial crisis. One of the world’s renowned venture capital firm named Sequoia capital called this outbreak “The Black Swan of 2020”, warned that the financial crisis originated because of the outbreak could take several quarters for containment and that could create a major dent to the global economy and it may take longer time to recover its gripping. Although all the large organizations could able to cope with this financial crisis by cutting jobs and spending, however, it would be really difficult for startups and small and medium scale firms to sustain this crisis without the external aids. The external aids could be in the form of crisis package from the government, donations from the bigger farms, and donations from the rich individuals.
Since this article is mostly focused in the sustainability of the startups based on the investment from the investors such as angel investors, seed investors, and venture capital firms, etc., we should know the past situations when the similar outbreaks happened in the 2003 and 2004 for the Severe Acute Respiratory Syndrome (SARS) outbreak and in 2016 for the Zika outbreak. In the case of the SARS outbreak, it was started in Asia, So Asia was the worst-hit part of the world and we had seen the decline in the investments by the private market funding. According to the CBInsight, the total funding was declined by 27% and 29 % respectively for the year 2003 and 2004 compared to the year 2002 and again bounced back in the year 2005.
In the case of the Zika outbreak, it was started in Brazil and spread to South America and different parts of the world, so South America was the worst-hit part of the world and we had seen the decline in the investments by the private market funding. According to the CBInsight, the total funding was declined by 50% for the year 2016 compared to the year 2015 and again bounced back in the year 2017.
However, in the case of the COVID-19 outbreak, it was started in China and spread to all part of the world, and in this scenario, the whole globe is getting affected, so the concentration will be more on the global funding compared to previous cases where it was pretty much to a specific part of the world. According to the CBInsight, private market funding is expected to decline by 35% in Q1 of 2020 compared to the Q4 of 2019 and it could decline further as the impact of the outbreak is getting severe these days and as per the prediction of WHO professionals, it will be more severe in the coming days.
Although we have seen in the past and the immediate future that the funding will be less compared to the previous year or in the future years, but lets not loose hope as we know this is going to be temporary. Let’s have a look at what the market experts are talking about which sectors will be shine and which sectors will be in the dark in this crucial time.
Let’s discuss the sectors that are performing well in this crucial time. Firstly most of the e-commerce companies dealing with online delivery of food and groceries, and retail, performing well and at the same time, the company is also taking extra precautions for them by telling the permanent employees to work from home and giving free insurance and healthcare cover to the delivery staffs. Secondly, sectors dealing with Video conferencing, gaming, streaming and online education platform has been performing well because people are spending most of the time in the home as well as working online in this outbreak. Thirdly Insurance companies could see a sharp increase in demand because many people will spend money on insurance to cover the treatment cost of the disease. Fourthly the healthcare sectors could find a sharp increase in the revenue because the ratio of demand to supply is high. Based on the mentioned logic we could hope that the investors will invest in these companies for positive outcomes.
Let’s discuss the sectors that are not performing well in this crucial time. Firstly The travel and tourism sectors have not been doing well because of the visa and travel restrictions on different routes. Airfares and hotel charges have been decreased drastically. Secondly, the Ride-hailing platforms have not been doing well because people are scared to travel in shared vehicles. Thirdly the food and cafe businesses have not been doing well because people are getting scared to eat and drink in public places. Fourthly the wealth management sectors have not been doing well because people are reluctant to invest in this crunch situation. So we could see a potential drop in investments in those sectors in this outbreak.
Finally, let’s discuss the digital healthcare sector a little more as we know these sectors have the high potential to adapt to this situation. We, Terenz as a digital healthcare startup found a lot of opportunities to show the potential and find a solution that could help the society. As an AI-based healthcare startup, we have found a way to contribute to society by providing a method to detect COVID-19 from the X-Ray images. As mentioned in the title the word “Shine” actually matters a lot to the digital healthcare sectors because we could do a lot of research remotely and come out strong to overcome the challenges now and in the future too. So the digital healthcare companies and funding investors should take this outbreak as an opportunity and position themselves to get a positive outcome.
