The instability of the global economy, the fever in the stock markets, the maximum caution of investors, the cancellation of business events - all these consequences of the coronavirus epidemic have a detrimental effect on startups in search of funding.
The coronavirus crisis impact on startup financing.
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The world economy was not ready for the rapidly spreading coronavirus epidemic - a number of experts have already spoken out that this event has become the “black swan” of 2020. Stock markets have been feverish for almost a month: on March 12, the UK securities industry fell 10%, and the Dow Jones and S&P 500 indices fell in the United States - in both countries there were no such indicators since 1987.
Not only services companies suffer from huge losses: factories are closing down everywhere in the regions affected by the infection, which destroys supply chains around the world. The economic damage that business felt on itself cannot but affect the value of shares and, accordingly, the behavior of investors.
In such unstable conditions, experts advise investors not to make risky deposits. First of all, companies that seem to be the most stable and promising in the current situation — those working in the healthcare sector or those whose products and services are needed by people who find themselves in home quarantine - are winning first.
So, in one day on March 4, the shares of the famous producer of canned soups Campbell Soup soared by 10%. Securities of Clorox disinfectant wipes company, Kroger, an American chain of stores, and Kimberly-Clark, a manufacturer of medical clothing and hygiene products, have risen in price.
Companies around the world are massively transferring their employees to remote work, which has led to a jump in the popularity of Zoom video conferencing service - during BBC February, the company’s security papers grew in price by almost 50%. Another area of investment for investors was medical organizations that are working on a vaccine against coronavirus.
Time does not endure: difficulties with investments
In the light of this situation, startups are unlikely to count on increased interest from investors. Venture capitalists believe that a coronavirus pandemic can make it difficult for companies to raise external funds - especially for startups in the early stages of development.
In fact, the problems are already making themselves felt: for example, Tommy Leap, the founder of Jetstream, which helps projects working on climate issues, wrote on Twitter on March 4: “A venture company from Singapore told one of the startups that they will not transfer two million dollars that they invested in round A in order to preserve capital in a coronavirus. The risks in obtaining financing are real. ”
Everything suggests that startups should hurry up with attracting external funds until the situation worsens, and investor behavior has not become even more cautious. The same advice is given to companies by some venture entrepreneurs: in particular, this recommendation was published on Twitter by Californian entrepreneur and Greylock partner Josh Elman.
Total Cancellations: Pitching Difficulties
But here startups are faced with a new problem: the ways of pitching to investors in an epidemic that has gripped the world have narrowed significantly. Most of the landmark events that usually bring venture entrepreneurs together are now cancelled or rescheduled for the second half of the year.
So, the organizers of the largest exhibition in the mobile industry Mobile World Congress had to abandon it, the Next Web technology conference in Amsterdam was postponed to October, and the annual MIPIM real estate exhibition in Cannes, which was traditionally held in the spring, was postponed until June.
The opportunities for meetings with investors were especially affected by the situation in the Asian market, which has become a hotbed of infection. If this region used to attract startups from all over the world with its capabilities, today many large players - such as London Talis Capital or venture capital firms Atomico and Northzone - refused to participate in Asian events.
More than twenty large-scale trade fairs and industry conferences have been canceled and rescheduled in the region - in particular, the Hong Kong Conference and Mines And Money Asia in Hong Kong, the EmTech Asia technology conference in Singapore and one of the largest exhibitions of household appliances and electronics in Asia CES Asia in Shanghai In February, Citibank cancelled its Asia-Pacific Investor Conference, which annually brought together more than 1,000 investors, issuers, and financial professionals.
It is difficult to argue with the appropriateness of such measures: in the conditions of the rapid spread of infection, any mass events turn into potential centers of danger.
So, at the conference of the American Israel Public Affairs Committee, which was held in early March in Washington, two participants were found to have the coronavirus - this put 18 thousand event visitors at risk of infection.
Pitch day online as a solution
However, the situation has not yet forced investment market participants to abandon their plans completely and prompted them to look for workarounds. One solution was first introduced by Sequoia China, a technical investor, who held his annual Demo Day online. The traditional face-to-face meetings of Chinese entrepreneurs with potential sponsors were replaced by three-hour virtual sessions, during which about 30 startups presented their projects to 50 investors.
Such a model began to gain popularity not only in the investment environment: Adobe Summit Microsoft, MVP Summit, Google Cloud Next, Nvidiaʼs GPU Technology Conference were transferred to digital. Facebook, announcing the cancellation of the annual event for F8 developers, noted that it does not plan to completely abandon it, but instead of face-to-face speeches, video recordings and live broadcasts will be organized.
Investment companies Atomico and Northzone have already taken advantage of the remote format for security purposes, which allowed their employees to work remotely and replaced personal meetings with video conferencing. According to Atomico Communications Manager Bryce Keene, most of the day-to-day work in venture capital investments can be done virtually.
New trend for startups
Online pitching is not a new phenomenon: projects such as Pitching StartupBlink and GlobalPitch are already working on this model. But the situation with the coronavirus has given this format a powerful impetus for development - so much so that this trend promises to remain popular in the future, changing current market practices.
A similar precedent occurred during the outbreak of SARS in 2003. At that time, online trading in China was poorly developed, and the small company Alibaba functioned primarily as a b2b platform connecting American buyers with local suppliers. But after many countries began to refuse business trips to China, it was Alibaba that became the online platform where people could find Chinese goods.
As a result, in 2003, Alibaba's business grew by 50%, and daily income was 10 million yuan (about 1.2 million US dollars). In the same year, the company launched the Taobao project, which soon became the largest c2c platform in China, leaving eBay behind. Thus, SARS became one of the triggers for the development of online trading in China.
What to do now?
According to the same scenario, the situation in the pitching market will probably develop. In the meantime, the best that startups can do in search of financing is to hurry up with the search for investments, while the situation provides such opportunities.
First of all, you should pay attention to online events: offline conferences lose their effectiveness due to the risk of cancellation and refusal of many capitalists to attend them. The online format is promising enough to continue after the outbreak - as a timely response to market changes.