18 February, 2021

Is COVID fuelling startups or stopping it?

By: Cesilia Faustina

Thanks to COVID-19 many businesses are at a standstill and struggling to make ends meet. It has created multiple challenges for the economy, which is affecting startups all over the world. Over the years, financial analysts and journalists have continuously covered stories of the development of startups. It was seen as a great contributor to the economy for the coming years. In a way, it still is, but startups are also one of the sectors most affected by the pandemic.

According to a survey by Startup Genome, 74 percent of startups had seen their revenues decline since the beginning of the pandemic. Even one of the most popular startups sectors, fintech, has seen decreasing profits due to the pandemic. Funding for fintech has fallen 45 percent compared to Q4 of 2019, according to a report by CB Insights. Startups will need and have taken tighter steps to reduce losses, with big startups like UBER having cut its workforce by 14 percent and other companies taking part in massive layoffs as well. Some have even been forced to shut down and start new businesses.

If we look at it from this perspective, COVID has definitely done more damage for the startup scene than good, however, some startups were actually more profitable during these times. I am talking about education technology and the gaming and streaming sector as examples. These sectors are definitely not short on investments. That said, the majority of startups are struggling, and surely not everybody can go into the streaming sector. This does not mean the startup sector is dead though. What exactly can we expect to see from this new startup environment?

Limited venture capital

As COVID-19 took a big bite of the startup sector, it has reduced funding and investments for many businesses. As mentioned earlier, this has resulted in many businesses either shutting down or cutting their workforce. Yes, this is a major blow to the sector, but again, this does not mean that it’s all over. Investments still exist, it is just more limited now. Investors will be more warry about their spending and will likely conduct more intense evaluation when it comes to funding. This means that whatever business one may be running, they need to make sure that it is still profitable in times of COVID or it counts as an essential business during these times.

Entrepreneurs do not have to limit themselves only to popular businesses during the pandemic though, do what you love, just make sure it survives. If one can present a strong argument and contingency plan, one that supports the current economic climate and future expectations, then there’s no reason why such startups would not be valuable.

Due to the limited availability of funding though, it is also smart to think about different means of gaining funding and focus more on retaining existing funds the business can capitalize on.

Government schemes

Governments have also tried to help the startup sector. Many have offered rescue packages, like in France making available €4 billion and Germany €2 billion rescue packages available to startups. Other countries like India, Australia, and South-East Asian nations all have their own versions of government support schemes.

This has helped many businesses stay afloat, however, it does not solve the problem. As great as government support may be, it does not help to sustain the business for long, which is why coming up with ideas that will benefit the economy in the long run is the way to go. Despite the impacts of COVID on the fintech sector when the pandemic first started, the fintech sector is actually making a comeback. Many governments are working with local startups in fintech to create more convenient ways of payment and keeping the economy alive, while still following COVID protocols. South East Asia is one example, where countries like Indonesia are working with local e-payment services to not only help the economy going but has given a market for the fintech sector. This is also the case with other countries like Malaysia, Singapore, and India. Many are looking at digital platforms to help achieve economic prosperity; something governments are noticing and taking advantage of.

With some creative planning and some government support, many startups, especially ones in digitalization are receiving assistance and creating new markets.

What works and what doesn’t?

When the pandemic started, it definitely slowed things down, but for others, it accelerated businesses. In the current economic climate, there are few industries that are thriving than most, and now having gone through all the COVID drama, companies are starting to see which sectors sell and which ones don’t.

Obviously, businesses with in-person dependency have been most affected. Traditional media, such as newspapers and magazines have taken a great toll, more than they already have, and so have businesses in accommodation, food, arts and recreation, and construction. Travel and airlines are also some of the biggest victims of COVID. Many of these businesses are still struggling today, yet some have tried to overcome it by going digital. Obviously, travel may have the biggest challenges here, but restaurants and recreations have all moved online to try to serve the market, so not all is lost.

On the other hand, “essential businesses” will continue to grow as long as the pandemic is still around. I am looking at Edtech and OTT (Over The Top) platforms. These two sectors have been some of the most popular during all the mayhem, and for now, will most likely continue to be. Many students are still stuck studying from home or have adopted a mixed-learning environment, either way, digital education is still an important part of life today, and most academic institutions will likely still invest in them for the long haul. Also, with many lockdowns still in place, OTT platforms have become the main form of entertainment. It has also become a tool for people to have fun, relax, and stay sane, something people will surely invest in.

Health and wellness are also sectors to look out for. With COVID getting the better of many, it is more important than ever to be taking care of mental health, so platforms to stay healthy, active, and sane are a must. Other sectors gaining popularity include the Cloud, e-commerce, and online gaming. The tech and digital spheres have become life, and many startups should take advantage of this scene.

So, COVID-19 has definitely slowed down the startup sector, but has it stopped it? Not at all. Clearly, there are plenty of obstacles to face trying to get back up and it will not be easy, but there will always be a market for startups. Startups help increase innovation and provide solutions and opportunities to an ever-developing economy. The pandemic may have pushed some industries and slowed down most but creating solutions to new problems is what entrepreneurs do, and those who adapt and innovate will always come out on top.

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