The Impact of Covid-19 on the Early-Stage Investment Climate
We are facing a crisis that we never experienced at this scale before. COVID-19 continues to spread rapidly around the world and has brought unprecedented economic uncertainty across every sector.
The startup investments have been also affected due to COVID-19. In my opinion, there are three things to consider:
1- Investors are also human and they are worried about lives of their family, friends and people around them. Most of their mental power is consumed to figure this out like everybody else which means less time and effort for investing.
2- During a crisis, especially one like this, you think of your portfolio companies first rather than focus on the new investments. Every startup is affected by COVID-19. So, as an investor your priority is to assess which of your startups are the most at risk and which may be encountering opportunities and to help them to navigate during these turbulent times.
3- Some investors are worried whether their Limited Partners (LPs) will honor their commitments. It is not strange to assume that some LPs are impacted during pandemic and unable or unwilling to make capital calls. Investors will prefer not to invest in new startups before figuring out their LPs situation.
Crunchbase estimates that approximately $3.3 billion was invested across 4,896 deals in Q1 2020 in seed-stage deals compared to $3.6 billion invested across 5,138 deals in Q1 2019.
Crunchbase also projects that $22.3 billion was invested across 2,170 deals in the first quarter.
We will see the effect of COVID-19 on the early stage investments more in Q2 2020. Having said that, there is always money for great founders. Fundraising will be tougher than usual but it is assumed that there is currently ~$150 B available for investment from VC funds of which ~$74 B that is available for new investments.
Coronavirus Impact on Industries & Sectors
COVID-19 hit some industries very badly:
· Tourism and hospitality,
· Art & Entertainment,
· Real estate,
We have just seen a second round of coronavirus layoffs, and more are likely on the horizon. As of April 20, there are 22 million unemployed in the U.S. alone.
On the other hand, some businesses are thriving during coronavirus. We have seen increasing demand for:
· On–demand streaming platforms like Netflix
· Work From Home (WFH) applications like Zoom
· Fintech applications including cashless payments
· Online delivery services
· Online gaming
· On-demand doctor apps
· Health and fitness apps
· Meditation and mindfulness apps
COVID-19 has also started to reshape the strategies and plans of decision makers at big corporations that startups should consider:
1- Remote work is on the top of the CIOs list
2- Digital transformation of every processes as soon as possible
3- Gathering and managing all customers’ data in one place
4- Tools to enable effective communication with customers
5- Tools to enable effective collaboration with suppliers
Entrepreneurship is never easy and extra hard during times of economic and social challenge. Investments will be rare for the next couple of months. But again, there is money for the great founders who are solving real problems — especially the problems for the post-pandemic world.