COVID pandemic harmed the startup funding

Did the COVID pandemic harmed the startup funding globally?

The health crisis generated all over the world by the rapid propagation of SARS-CoV-2 has led governments to undertake drastic measures. Not only has a large part of the society been under lockdown, but also the economic side has experienced a powerful decline. Among the sectors that encountered such effects were the startup companies, but now many economists are forecasting a recession. However, before assessing the impact of COVID-19 and looking for solutions, more important it is to have the necessary information to get a bird’s eye view of the current situation.

What is the current COVID situation throughout the world?

Growing a startup during a pandemic is a serious challenge. Whereas the lack of employment generated few to no clients, most of them are on the verge of declaring bankruptcy. However, not all of the startup companies follow the same path.

According to the first global startup survey on COVID, these are difficult times. The survey, conducted by JF Gauthier and Arnobio Morelix shed a light on the expected high rate of unemployment:

  • up to 41% of these companies have the cash to survive on the market for three months at best;
  • 74% of the interviewed startup companies were forced to interrupt contracts with full-time employees. The highest percentage has been registered in North America (84%), Europe (67%) and lastly, Asia (59%);
  • while 74% of the subjects noticed a decline in their revenues, only 16% of them have been seriously hit, with a drop of 80%;
  • 12% of the startups declared to have experienced a growth of at least 10% in their revenues since the crisis began;
  • 96% of the tech startups agreed with continuous working during COVID regardless of the disruption. They are working smoothly even in lockdown scenarios;
  • no less than 38% of the startup companies expect no help from policy measures. Since the beginning of the crisis, they received zero assistance. On the contrary, 16% hope to receive a hand from a policy measure to maintain their positions on the market. The 46% left agreed they are receiving assistance as we speak.

Asked about the best policy responses in times of crisis, founders and startup executives concluded upon the following top:

    1. 29% – grants to preserve company liquidity;
    2. 18% – instruments to boost investment;
  1. 17% – support to protect employees, such as payroll supplementation grants;
  2. 12% – loans to preserve company liquidity.

Impact of COVID on the economy of US

News is not great for the US economy. According to the World Economic Forum, US GDP registered the deepest decline ever since 1947. It currently has an annualized rate of 32.9%.

Unemployment has experienced a drastic increase in rate. Up until 11 July, 30.2 million Americans were added to the number. This comes as a direct response to the low consumer and business spending, hence a decrease in income. The worst news is such a decline has ripped off the growth the US registered during the last five years.

US startups with social impact are expected to receive more support. However, the process is long enough to pause their actual development.

Impact of COVID on the economy of UK

Besides the undeniable challenges, most of the UK startup companies are facing numerous opportunities. One of these is the tax relief scheme of the UK government, known as SME R&D. According to its input, each startup is able to deduct an extra 130% of their qualifying costs. This is a measure applied to the yearly profit, aside from the normal 100% deduction. However, the expected time until the cash is received could be very demotivating.

The UK government has also came up with three loan schemes for companies during COVID-19, known as:

  • CBILS – Coronavirus Business Interruption Loan Scheme;
  • CLBILS – Coronavirus Large Business Interruption Loan Scheme;
  • BBLS – Bounce Back Loan Scheme.

Impact of COVID on the economy of Australia

In May 2020, Australia hosted 151 innovation (incubation hubs), 395 co-working spaces and 475 communities for industry and tech. Compared to most of the European countries, Australia has always supported creativity and innovation via networking development and financial measures.

In order to support all of the businesses affected by the COVID-19, the Australian Government added the following measures to the table:

  • JobKeeper Payment – available for employers, companies, trusts, charities, and even non-profits. Each eligible employee will receive $1,500 every two weeks up until 27 September 2020;
  • SME Guarantee Scheme – eligible for small and medium enterprises, which can receive a guarantee of 50% from the state. It is important to note that the requested loan cannot exceed $250,000 per borrower and has to be repaid in 3 years;
  • Quick and Efficient Access to Credit for Small Businesses.

Impact of COVID on the economy of Canada

While SARS-CoV-2 has raised many concerns among the countries, Canada managed to attack the virus from all angles. Up until now, the Canadian economy has shrunk by about 6.2% each year because of COVID-19.

In order to tackle the economic impact, Canada set up the following measures:

  • BCAP – Business Credit Availability Program – has a pool of $10 billion that can be used to support all businesses dealing with cash flow challenges. To access the funds, companies will have to shed an eye onto the programs created by the Business Development Bank of Canada and the Export Development Canada;
  • Working Capital Loans – have a maximum of $2 million and already flexible terms inserted. The payment postponements can reach 6 months for the businesses that qualify;
  • Co-Lending Program for SMEs – can offer up to $6.25 million for operational cash flow requirements;
  • Business Credit Availability Program Guarantee – can be accessed by small and medium-sized Canadian businesses to obtain credit and cash flow term loans of at most $6.25 million.

Impact of COVID on the economy of China

Up until February, the industrial output of China has noticed a drop of 13.5%. At the same time, retail sales were down with 20.5%, following the startup investments that were in a rapid decline after the emergence of SARS-CoV-2.

According to a report created by the International Monetary Fund, China’s government reduced mobility and imposed restrictions to activity. Thus, only the essential sectors kept on running. However, it has conducted the following measures:

  • Encouragement for the lending to various SMEs;
  • Support for uncollateralized SME loans received from local banks;
  • An evaluation system set-up for banks’ lending to MSEs;
  • Various delays in loan payments while setting an extended deadline for March 2021.

Creating a strong bond between the government and the private sector during this pandemic has shown to be the key to a great economic comeback. Thus, not only the medium and large-size companies are expected to overcome negative impacts, but also the small-sized one, including startups.

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