How Coronavirus Will Affect the Start-up Industry and Overall Economy
The COVID-19 pandemic is jeopardizing our economy and nobody no how long are we going to face the issue. Today All companies (New Start-up or established) are facing an unprecedented challenge. The Co-founder and Former CEO of Microsoft Bill Gates warned that a virus may lead to a global economic depression.
Once the world known that the effects of SARS-CoV-2 are about to last for a long time, everyone began to scrabble for another plan. Sequoia Capital, one of the most renowned names in the venture capital industry around issued a “Black Swan 2020” advisory to its portfolio companies, asking them to consider cutting costs, revising sales, forecasts and conserving cash. Sequoia Capital also accepted that many of its companies have already informed growth rates getting down rapidly between Dec and Feb. A lot are now at risk of missing their first-quarter goal.
Most industries have been hit. Aviation Consultancy Asia Pacific Aviation has said that due to SARS, it might be going to push most airlines all over the globe to bankruptcy by the end of May. They have also sad only a coordinate action by gov and industry can rescue them. A lot of hotels have said that they have a 95% dip in occupancy rates. It estimates that March to May has been a complete washout in Indian tourism. Advance booking for June-Dec is going down by over 80%. Cab business like Ola and uber service were already getting 30-40% since Feb.
What Does This Mean for Start-ups?
So many of the new entrepreneur is worried about their new start-ups, so let’s be clear here, that if your business is early-stage start-up then you are about to float. The only cost you need to worry about is yourself or the founder. If you are trying to look for angel funding, then it is good for you. You can raise the funds you need locally.
WHF Good for Business, Not for funding
According to Entrepreneur.com, For the next six months, if you have funded or if you have already raised a round of funding, it means you are in good situation. However, start-ups in the middle of sequence A, b and c round is going to be a hit, as you know that investment needs plenty of meetings and due-diligence between the investors and the Co-founders.
Since investment firms that lead large funding rounds are founded in a different part of the world, it isn’t so easy for an investor to shut down the investment rounds in the present situation. So many reports have shown that some big investors are putting their plan on hold for the time being.
Big rounds of investment grasp time to become productive and also without telling the co-founder in person, they cannot be closed. Since it is the most difficult and challenging time, it may have few possibilities that some investors might soon come out with a new way as to how to shut down a big deal remotely.
Funds Stuck in Stock Markets
In general, Start-ups approach big members’ offices for bridge loans in between investments. Actually, it is done to cover cash flow to tide over for a couple of months, until the funding comes in. However, there is becoming some possibility that the source of funding could also dry up. Big people’s offices that invest/loan money to start-ups typically have specific numbers of their own funds in the stock market all around the world.
As per Entrepreneur.com, more than 20 % of markets have declined, it is becoming less possibility that any of these offices can bring funds into new start-ups until their stock portfolios develop.
Which Start-ups to Invest In
It is about to happen that people will own the strategy “Burn the Cash to grow”, for your information, this major trend that can create an issue for the start-up’s sectors as per Entrepreneur.com. To increase the company growth, Start-ups across burnt over billions of dollars in their quest. Now the situation has become bad to worse, so start-ups will be forced to look at profits.
Some reports show that it is going to be a global recession for the next quarter or two. Upcoming time, it is going to tougher for businesses to enhance customers and show traction. India has been facing economic issues already, after this pandemic, people may not buy as much as they would. The Start-ups will have difficulty for them to raise a round of funding. Venture funds will have common choices: should I go with questionable companies or should I focus on my performance? It isn’t hard to find out.
