To better understand the impact of the COVID-19 crisis on startups globally, and equip governments with tools and actionable insights to support their innovation ecosystems, Startup Genome launched the world’s first global startup survey on the topic.
This continues our broader initiatives about the impact of COVID-19 on global startup ecosystems, like Global Policy Knowledge Base and our ongoing Research Series.
The Chinese ecosystems were hit first, with funding declining by over 50% in the first two months of the COVID-19 crisis.
Then they were followed by Asian ecosystems, and then by most of the world.
An astounding 41% of startups are in what we call “red zone,” with three months or less of cash runway left.
This means that four out of every 10 startups will die in the next three months if they do not raise additional capital and their revenue and expenses remain unchanged. The number of companies in the red zone is up by over 40% since December 2019.
The situation is less dire for companies that have raised Seed, Series A, or B+ deals in the past. More than a third, or 34% of them, have less than 6 months worth of cash — a danger zone in the current situation where fundraising is difficult.
In addition to risking future financing prospects for startups, the crisis is also derailing ongoing fundraising. Half of startups were trying to raise money pre-crisis. Of those, most had only been pitching, but 17% had a term sheet from investors.
For those with term sheets, just over one out of four have continued to have a normal fundraising process, either getting the funds or with the process going on as expected.
The remaining companies have had their fundraising derailed, with 19% of those who had term sheets noting investors had canceled their rounds.
Talent and Jobs
The number of unemployment claims continues to mount around the world. In the U.S. alone 22 million people lost their jobs during the first four weeks of extended lockdowns and shelter-in-place orders.
These four weeks have the sad distinction of both destroying more jobs than the 18-month-long Great Recession (2007-2009) and wiping away the 21.5 million jobs created in the economic recovery in the U.S. since then.
While some of these workers might find new jobs and ultimately not add to the total toll of unemployed long-term, the economic prospects are frightening.
Startups, unfortunately, have had to make difficult decisions regarding their teams. For companies with full-time staff, 74% have had to let go full-time employees.
Most of the cuts so far have been relatively small—about half of the companies reducing their workforce have laid off 20% or less of their staff. But it is reasonable to expect more cuts in the future.
When we break down that share by the top three continents for startup activity, North America is the place where most startups have had to lay off employees (84%), followed by Europe (67%) and Asia (59%).
U.S. companies (the lion’s share of responses in North America) probably had to lay off more employees in part because of the relative lack of payroll protection programs, when compared to Europe, as well as having a regulatory environment for labor markets that is more friendly to layoffs as well as contract and part-time work.
When we broaden the scope to look at all staff, including contractors, part-time workers, and consultants, the vast majority of companies —95%— have reduced labor costs.