COVID-19 and Its Effect on Tech Startups

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COVID-19 and Its Effect on Tech Startups

Several enterprise-focused tech startups are losing out on capital opportunities as they witness a heavy drop in revenues

According to the latest survey from Genome, tech startups globally are on the verge of losing their funds and going out of business over the coming months due to a significant drop in their revenues. The global policy advisory company to tech startups surveyed 1,070 startups across 50 countries in March 2020.

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As most of the tech startups can work remotely, the pandemic is having a limited effect on their operations. However, in terms of their finances and market conditions, the survey paints a gloomy picture. In addition to pulling back funds, investors are canceling term sheets that represent funding commitments. The potential market for tech innovations beyond the short term is also at risk.

The survey reveals that 65% of enterprises have been significantly affected due to the pandemic. About a quarter of tech startups have seen a rise in revenues since the pandemic. Meanwhile, consumer-oriented firms are three times more likely to see growth due to the pandemic as compared to enterprise-focused startups. The survey found that tech startups focused on larger enterprises are struggling the most to garner revenue.

As per the survey, around two-thirds of tech startups do not have the capital to survive beyond September, while 31% can’t survive beyond June. Half of the tech startups were trying to raise venture capital before the COVID-10 pandemic. Those that were already in the process saw everything turning slow, and eventually faced cancellations and frozen funding status. The conditions now will make it harder for them to survive once their existing funds start to run out.

More than a quarter of the tech startups lost somewhere between 60% and 100% of revenues since the pandemic, found the report. Meanwhile, 26% of them actually saw their revenues rise so far during the pandemic.

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Startups have started laying off staff, and only 5% of them have avoided staff reductions. Nearly half of the respondents laid off 20% of staff while 21% of them let go of 40% of staff. According to the survey, 38% of tech startups have not been helped and don’t expect to be helped by government policies.

To cope with the economic slowdown, large enterprises are cutting costs quickly. On the other hand, consumers are shifting their consumption patterns toward digital products and services due to the ongoing lockdown. This has benefited tech companies more than other businesses, but the condition of startups will continue to be shaky until the market settles down.