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Impact of COVID19 on Startups

Akhil Kumar By Akhil Kumar | April 22, 2020
Impact of COVID19 on startups

If we put it mildly then just a month has altered everything from our personal lives to the business world on the global level. Coronavirus has upended our whole lives, be it the industries or economy. 

Industries are juggling up with the revenue, countries are under seal, and people are flattering around due to the crisis. The COVID-19 uncertainty has made coping up with the world investment for the business.

The venture capitalists (VCs), startups, and entrepreneurs are facing an anxious time due to post-coronavirus. As far as investment is concerned, the ecosystem for the startup is going into the “status quo” zone.

The impact of COVID-19 on startups has been extremely high since February. The uncertainty is going a notch higher every day and no one is aware of its impact in the coming months as seen below for seed funding.

global seed funding

Sequoia gave the title of “black swan of 2020” to coronavirus in the memo that showcases that the implications are far-fetched. Its startup guidelines were simple such as cash runaway, business, sales forecast, fundraising, capital funding, headcount, market, and so on.

The lockdown has stalled the industries due to the coronavirus pandemic. Since 24th March, more than 2 billion people are living under severe restrictions that have halted the business world as well.

The major issues that are counted for each industry is in terms of labor, financial, and demand. These sectors are included in each and every industry that is slowing down the economy and has nascent recovery. 

The major impact of COVID-19 on the startup due to these sectors are:

  • Labor/Employees Issues – The companies depend widely upon the large employee-based that works on the payrolls. There are employers on a contract or permanent basis that are not being the absence of work due to the lockdown.
    The human resources have gone down, resulting in economic losses due to the work stoppage. The employee might be seen as a small entity but it has a drastic effect on the workflow and economical sector.
  • Financial Issues – The lack of labor or employees in the companies is affecting the work and delivery of products. As a result, this is impacting the financial sector of the companies. Companies are not able to generate revenue as it was expected at the start of 2020.
    The total revenue and initial investment is seen as something that is far away as of now. Due to the pandemic, the companies are not ready to go for new products or purchasing a product that is not extremely profitable.
  • Demand Issues – Due to the coronavirus pandemic, the companies are going through a sudden decrease in demand for many products. However, the pharmacies, grocery, etc are seeing an increase.
    The high risk of coming in contact with others is making others think before going for the purchase. As a result, the demand for a number of products has gone down for the last two months and in the coming months, it is going to go down.

Before going for the global startup impact, let us understand how different industries are influenced due to the coronavirus.

Impact on Industries AMID COVID-19

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The cutting-edge technologies have an impact on the industries and a per capita around them. However, coronavirus has spread like wildfire and is now resulting in the devastation around the globe.

The major industries follow:

#1 Travel
Due to the coronavirus pandemic, people are not very much interested in traveling or even thinking about it. The social distancing has made it difficult for people to even go out, forget about travel. This has a huge impact on the online-enabled travel, hotels, and homestays websites.
The leading travel companies, apps, and websites are going down due to the lockdown and ban on travel. There are a number of users that are canceling their tours and any sort of plans for the trip.

#2 Transportation
The cab-booking apps or public transportation systems are now going through a decline and a difficult time. The IT department is working from home but the cab drivers and others are facing a lot of problems due to the outbreak.
The conveyance demand has gone down and people are facing guidelines to ensure that the employees stay healthy. However, access to the vehicles has gone down, the companies are working on the ways to be in the race.

#3 Commerce
The commerce sector is working differently when it comes to demand. The grocery, food, and retail sector has gone higher in the last month. Users depend upon the online websites and apps to order their essentials.
The number of orders over the past month has increased and due to the increase in demand, the apps are also increasing their availability to ensure that essentials are timely delivered. The market price for the commerce sector has skyrocketed and will continue to grow in the coming months.

#4 Fintech
There has not been any major impact on the leading startups but in the coming years, the impact is going to increase. The loans and repayments are going to be difficult for the users and companies. The major concern is rising expenses and salary credit delays that can make lenders miss out on the repayments deadline. 

#5 Real Estate
The real estate industry is going to face the heat of the coronavirus in the worst possible ways. People have already invested in the new houses and planning to shift as soon as the construction is done. But due to the COVID-19 impact on real estate, the houses are left unconstructed and not completed. 

Read More: Impact on food industry amid coronavirus

#6 Dairy Farms
Many people are not aware of the impact but the fact is that dairy farms are facing the heat of the coronavirus pandemic. There are limited people that are purchasing milk due to the quarantine and social distancing practices. However, the cows are giving milk but with no customer, it is getting wasted and dumped. Many of the farms are yet to start dumping but if the situations go like this then dumping milk will be the only option left.

#7 Manufacturing
The manufacturing industry is also facing a lot of issues amid the coronavirus pandemic. Shortage of labor, raw material, and travel restrictions are becoming a major concern for everyone. This is impacting the manufacturing due to the supply chain and social distancing for the employees.

Read More: Impact on eLearning apps amid coronavirus,

#8 Education
The new session for kids has come up as a disaster towards their studies. With the quarantine period flow, the school and institutes are shut down which is impacting the education of the students. However, the online classes are arranged for them but it is having a number of issues for the kids to catch up too.

Read More: impact of COVID19 on Fitness apps

These are just a few names in the long list of industries that are impacted due to the coronavirus. The major impact of coronavirus on mobile app economy, telemedicine industry, dating apps, etc. can be easily seen. 

How COVID-19 is Affecting Startup Funding?

For the past month, there has been a drastic change in the industries, especially for investors. Things are tentative as of now but if situations go like this, it is going to change the way companies invest in the products. 

There has been a drastic change in the industries over time due to COVID-19. Even after the preventive measures, the countries are showing drastic changes. Italy is under lockdown, New York and California are also under emergency status. Other countries are also going down on the road of lockdown at various degrees.

These have come up as the biggest challenges for the startups and entrepreneurs that need to be physically active in the market at the initial stage. However, Zoom and Google are trying to fight against the Coronavirus pandemic for startups with tech solutions.

What are the major COVID-19 effects on startup funding? Here is everything you need to know.

#1 Chain Funding
The investment world doesn’t work individually but is interconnected due to the involvement of multiple sources that invest in startups. It can be real estate, stock market, profits, and even savings.
However, the stock market is considered as the primary source of investment and will have a spillover effect in case the graph goes down. The unlisted entities face the heat of every single drop in stocks. Due to the halt in trading, stock marketers are now constantly under decline and are cautious due to the predominant sentiment.
The uncertainty is the biggest challenge in the stage of investment. However, companies are ready to invest in the early-stage of startups but it all depends upon the right opportunities. The total investment rate for the startups at the start of 2020 was around $21 million and by February it reached more than $300 million. However, by March, the rate of investment went below $30 million.

number of deals amid coronavirus outbreak

#2 Investment Protections
Cation followed by protection is the major concern at the present movement for investors. Before investing, companies are taking protections before making decisions. From portfolio to requirements, each and everything is considered by the investors before making the deal. This all depends on the idea that can weather the storm before the investors actually invest.
How the investors feel about the opportunity speaks the most about the fundamentals of investment for startups. However, the current environment is extremely challenging in terms of funding. If we talk about the late-stages, then it can take more than two quarters to bounce back to the original position. 

#3 Late-Stage Startups Vs. Early-Stage Startups
As shown in the above image, the number of deals is slowly going down but is still a bit steady. The graph shows that early-stage startups are still getting the required attention since the deals are the same.
If we depend upon the VCs then you can say that early-stage startups will not face many issues but later stages can face a lot of heat due to the increase in uncertainty. However, Advisors are not much commenting on the situation. If anything, the companies take the long-term investment view in mind, hence, Series A, B, and seed-stage should not be affected much.
Nevertheless, the pace of funding is surely affected by the face-to-face meetings between founders and investors. Even after video conferencing as the preliminary meetings during the coronavirus outbreak, the short-term delay is common.
The best thing is that there are sectors that will remain immune during such time even though fundraising is extremely challenging. The least impact will be seen on the early-stage or seed companies whereas the Series A investments can face a lot of challenges.

#4 VCs Challenges
The challenges are not just for the startups but for funding houses as well. The VCs that planned to raise the funds are not relatively safe as compared to others. The fact is that it is becoming difficult to raise funds due to limited traveling are the major factors. China, Singapore, and the US are considered as the major key fundraising marketers that are now facing a lot of challenges.
However, the investors that understand the whole up and down cycle of investment, known as seasoned investors, believe that the wheels will spin for good soon. However, the coronavirus outbreak can be a rude awakening for everyone due to the pump-and-dump model.

What are the Issues Faced by Startups & Businesses?

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Apart from the fundraising, startups are at their vulnerable or going to reach the stage soon. The pandemic has the worldwide effect controlling startups, entrepreneurs, and businesses. If a pandemic goes like this, then the situation will reach a level of general chaos even with preventive measures.

But if you thought that startups are the only ones to feel the heat then you need to think again. The giants are facing a lot of issues as listed below:

#1 Decline in Productivity
Even with the involvement of the digital age, the business works well with the organization structure. The cross-functional roles are a vital addition to the business but with companies shutting down the offices and going for work from home, it is becoming a bit difficult.
As a result, companies are facing serious problems in terms of productivity due to the attention distributed to household concerns. The productivity during the time of unprecedented and tough times are going to make it handle the worldwide businesses. 

#2 Stakeholders for startups
The economic uncertainty has made the startups and entrepreneurs suffer a lot. The coronavirus pandemic has a lot of tragic consequences as mentioned by the UN that can cost around $2 trillion. This will change the global economy of the stakeholders as well.

#3 Supply chain breakdown
The global commerce community due to the red zone establishment and limited communication with vendors. In the Fortune 1000 companies, 95% of them are facing issues with the supply chain due to the coronavirus pandemic. Be it technology or healthcare, the supply chain is becoming a major concern for companies and startups.
China is considered as the major hub for industrial goods due to its costing factor that is impacting the global world. The third-party firms that are associated with the startups are facing a lot of issues in terms of legal, industrial, and regulatory operations.
The administrative functions, data acquisitions, and customer services as the soft supply chain are affected by the startups as well. 

#4 Shutting down premises
The commercial and social lockdown has become a common thing for the countries as the preventive measures against coronavirus pandemic (except necessary business including healthcare sector). This is also affecting the performance of the organization due to restrictions of operations.
The performance of organizations and startups are affected profoundly due to restrictions and turning out the online operations as well. Social distancing has become a major component in the productivity level amid the current situation.
Companies are offering their support and the necessary equipment to the employees to keep them healthy, safe, and support in challenging times.

The global economy is affected due to the pandemic stalling businesses, disrupting the supply chain, and thwarting global trade. These major issues make small businesses anxious due to a lack of facilities and resources.
However, the government and private organizations are not leaving startups alone, there are major steps taken by them to help small businesses and startups to ensure that they can survive the pandemic outbreak. 

Government Taking Steps To Avoid Economic Instability

The pandemic has put everyone in a frenzy including government. Everyone is now looking up to the government for some preventive measures that can strengthen up the finance sector. The government is trying to help out the startups and local businesses while taking a few initiatives.

The USA government has sent out good news for the taxpayers by extending the date of the federal tax deadline to July. The small  Business Association Economic Injury Disaster Loans are also announced to assist small businesses going around $2 million. The initiative is to help the startups during the coronavirus outbreak and easing up to access capital while following regulations.

Italy, on the other hand, is raising 25 billion euros as a relief package as the support to the country’s economy that is extremely fragile due to COVID-19. Even for the tax credit, the government is offering 50% of it to the businesses for sanitation.

The government of Germany is also not behind all others in showing their support to the small businesses and startups amid social distancing. The government has given time for businesses and people to delay their taxes.

In addition to this, the state-assigned mediator is also included in the long list of government initiatives. The motive is to make it easy for people that are not able to pay loan insurance fees and debt payments. 

Private Organizations Taking Steps To Avoid Economic Instability

Apart from the government, the private sector is also taking an initiative amid the coronavirus outbreak. The government has given relief to the taxpayer on a financial level amid the crisis since people are neck-deep in debt (some are).

Even the top corporate and technology leaders are also taking a step forward to help out the startup world. Facebook as the cash grant offers $100 million and ad credits in more than 30 countries for 30,000 small businesses where Facebook operates.

Apart from that, another of the online lenders, Kabbage offers gift certificates to small businesses as their part of the support. The certificates offer money to businesses to come out of the crisis without any major consequences.

The small businesses and bank customers are also getting help from Citibank waiving penalties and fees during the pandemic outbreak.

In the time of pandemic chaos, digital platforms, and technology are taking a step forward to save the economy and commercial community. Since the increase in the number of cases, deaths, and lockdowns,

However, during the lockdown, Cisco, Google, Zoom, and Microsoft like giants are offering free services to the educational institutions and companies for collaboration and conferencing tools to bring them together and help them out. 

Conclusion

As per the predictions by the giants and even the VCs, coronavirus is capable enough to push us all back in terms of economy for around a decade or two. The unprecedented situations and challenges are becoming a major concern for everyone (small or big businesses).

Social distancing and isolation might be the main solution to prevent the spread of the coronavirus outbreak but productivity is also decreasing.

For the businesses, the limited employee’s hard work, supply chain dysfunctionalities, and demand disruptions are becoming tangible issues.

Amid these crises, the real heroes are coming forwards in the form of doctors, pharmacies, service workers, tech platforms, and digital innovations. The motive is to save the world from the crisis and thrive our ways with digitized practices.

Akhil Kumar
Akhil Kumar

Co-Founder & Managing Director of AppVenturez Mobitech. An entrepreneur who is tech-savvy and aims to build the largest software business through technological innovation, keen business strategist and a passionate technocrat. He firmly believes in learning and earning by planning and performing.

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