// 05.28.2020

how coronavirus is shaping the world of startups.

On May 31, the worldwide number of coronavirus cases surpassed the grim number of 6 million. Coronavirus’ growth rate is exponential, and although numbers are declining in some countries, the epicentre is only shifting, and our intensely connected world means that no one is in the clear. How long it will all last remains an uncertainty.

What is certain, however, is that coronavirus will have profound and widespread effects on both the world at large and the world of startups. Whilst the long-term implications are impossible to know, coronavirus is already dramatically changing how startups work. Here are three thoughts about how the pandemic is altering everything to do with startups.

 1. slow, but sharp, funding.

Venture Capital reached an all-time high in 2018, with the most amount of money being invested globally into private companies on record. And 2019 wasn’t bad either. But with coronavirus causing markets, economies and spending habits to tank, March alone saw a 22% drop in European funding rounds and valuations being cut by 20 – 30%. Funding has undoubtedly slowed, especially for seed and early-stage deals, and that trend is likely to persist in the months to come.

Yet there is reason to be hopeful; investors haven’t stopped investing. San Francisco based fintech Digits, who have released a free expense tracking platform for small business, recently closed a $22 million Series B round.

What has been refined, however, are the metrics startups are being judged on. Even for those in industries that have been hit the hardest such as travel, retail and hospitality, demonstrating true sustainability in the long-term will be a primary factor in securing funding in this unprecedented environment. Where growth is coming from and will come from are criteria that have been sharpened by coronavirus. And as some investors do exit the scene for a while, other VCs are using the quieter field to invest in startups that show robust possibilities for growth.

So, whilst coronavirus has slowed venture capital to a sluggish pace, funding for startups is still very much available. And if there is a silver lining to be found in this, it’s that the new, higher benchmarks it has set for startups should motivate entrepreneurs to bolster their growth strategies and refine their business propositions into the best they can be. And if you want to hear what venture capital firms have to say, read Sifted’s conversation with three of them.

2. the digital mindset.

Coronavirus is rapidly ushering in a new digital normal. From a dramatic shift to remote working – including a reliance on digital collaboration tools – and people learning online to events turning virtual and telehealth booming to meet the increased need for non-contact medical advice, the pandemic is the nitrous oxide to worldwide digital transformation. In one study conducted in the DACH region (Switzerland, Austria and Germany), 70% of respondents said coronavirus will accelerate digital transformation.

For startups, digital channels are now – and will be – the primary (and sometimes only) means to connect with both audiences and teams, and that’s unlikely to change for some time. In short, digital transformation has become a necessity. Agile startups are arguably in an easier position than more established companies to tackle digital transformation, but it’s still a difficult task and some research suggests that less than 30% succeed.

Having the right digital-minded leaders, empowering teams to work in new ways and upgrading everyday tools to the digital world are some of the small steps towards a successful digital transformation, but in reality, it takes much more than that. So, as part of McKinsey’s invaluable and ongoing efforts to arm businesses with the knowledge to weather the pandemic, they’ve created a thorough guide to building digital strategies in the time of a crisis. Read it here.     

3. new consumers. 

Consumer behaviours are drastically changing as a result of coronavirus. As people adjust their daily habits and movements, work remotely, spend more time indoors and spend less time with other people, markets have been realigned. Industries like micromobility have nosedived, with some of the leading startups in the field such as Lime and Bird suspending services in numerous areas and the latter making the difficult decision to lay off 30% of their staff.

And even when the world settles into its future normal, things won’t be the same. There will be long-term changes to how people think about health, privacy, spending and value. In one study, 45% of respondents said they would continue with their lockdown mindset even after normality has resumed, 75% said they will focus on experiences rather than buying consumer products and 82% said they want to support local businesses more and aim to buy locally sourced products. For startups, the implications can’t be overstated.

What these shifts in consumer behaviours do offer startups is new opportunities. Whilst existing micromobility startups are suffering at the moment, coronavirus could catalyse a boom in the coming years. Modes of transport that prioritise individual space will likely be the preferred choice, and NYC’s surge in bike use to curb coronavirus exposure and maintain social distance could be a hint of a what’s to come. And if you want to think more about how the outbreak could reveal new market opportunities, here is an interesting case study about the future of micromobility.

 

Next read: 9 documentaries that will motivate every entrepreneur.