Why US Startups Will Thrive Post-COVID-19

Richard Fang

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Many startups right now have one thing on their mind: to survive the pandemic.

Although the vaccine has been slowly been rolling out across the world, there is still uncertainty economically. With the Fed pumping money into the economy consistently, it would be a matter of time before this might not work.

Startups have always been a critical driver of economic growth and, most importantly, job creation for countries. Even during the crisis, startups will have continued to innovate and, most importantly, react to changing environments.

This is one of the significant advantages is the ability to adapt and innovate on top of their products. Many businesses that were situated in heavily affected industries have had to pivot to survive.

For example, tourhq.com, which helps connect travelers with tour guides, pivoted into “online experiences” as soon as COVID hit.

Even with these pivots, however, startups have been having it rough.

Let’s start off the reality — startups have been hit hard

For startups looking for funding, for the first half of the year in 2020, there was a reduction in VC deals by approximately 20% since December 2019. Countries like China were hit the hardest with the virus causing VC funding to drop by a staggering 50% in the early months of 2020.

https://img.particlenews.com/image.php?url=0lXM1P_0YpwNtqI00Source: Source: www.startupgenome.com

Many startups were also in a worrying zone of having less than three months of runway left. As seen in the graph below, only 15% of the startups surveyed had more than one year of runway in the bank.

https://img.particlenews.com/image.php?url=0H0hbr_0YpwNtqI00Source: Source: www.startupgenome.com

Although a concern, the majority of the casualties would have happened earlier in the year as the economy has since rebounded aggressively. Although many industries are still suffering, there are also equally many thriving ones as well.

Let’s now take a look at why the startup ecosystem should be thriving soon.

VC Deals are still growing even though there is some lag

Although there was a dip in early-stage funding, late-stage VC deals flourished in the first half of the year in the US. This is most likely due to high capital availability and investors looking to place their money in larger and safer investments.

https://img.particlenews.com/image.php?url=2bjPVz_0YpwNtqI00Source: https://pitchbook.com/news/reports/q2-2020-pitchbook-nvca-venture-monitor

Overall deal activity remains stable even with slower growth out of the gate in 2020. Although it might not reach the highs of 2018, there is still a lot of room to move for the 2H of 2020.

Angels are available with hope for early-stage companies

Although we started the article discussing the implications the pandemic has had on early-stage startups, signs point towards growth in the near future.

For the US, angel deals remained steady at 550 angel financings, which was a slight decline compared to the first quarter of the year. Although there has been a massive slowdown on seed deals, what is promising is the sizes of these deals.

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Angel and seed deal sizes both rose with medians of $580, 000 and $2.2million respectively.

With how steady angel investing has been even within the turmoil shows how risk-tolerant investors can be.

What might be thought of as a wrong time to launch a startup can be countered simply by looking at how the ecosystem is still being supported by these angels.

Funding without meeting founders

https://img.particlenews.com/image.php?url=4WF4rh_0YpwNtqI00Photo by visuals on Unsplash

Some of the initial concerns for startups were that it would be hard to raise money without being able to meet people face to face.

Even seasoned investors like Jason Calacanis noted that he struggled to accept that he could invest in a company without meeting founders face to face (as mentioned on his podcast) but has since invested in his first-ever batch of startups without meeting them in person.

Many investors are now becoming more comfortable with not needing to meet founders, especially as the pandemic continues to affect not only networking events but face-to-face meetings across the world.

We believe these factors (being comfortable without meeting founders F2F) will lead seed counts back toward recent normal levels, especially if lockdowns are able to ease across much of the country. — Pitchbook

With more funding available potentially in the 2H of the year, this demonstrates potential recovery within the startup ecosystem, especially if there is more capital available for startups to catch.

More opportunities for startups to capitalize on

As mentioned earlier, startups can innovate and pivot, depending on the circumstances around them.

With every recession, we have seen new companies born with innovative ideas and successful execution. The two obvious ones from the GFC were Uber and Airbnb, while Alibaba’s Taobao was founded during the SARS outbreak of 2003.

Even in a period of crisis comes both a challenge but also an opportunity.

Startups have the best chance of solving a problem quickly and efficiently, especially a short term issue.

At the current time, many industries have opportunities residing within them, such as healthcare, online education, delivery, and more. Especially with big swings in social norms right now, there is a chance to uncover business opportunities.

All of this points to a thriving startup ecosystem

With the recovery in the market, as well as investors, potentially returning, we should see a healthy startup ecosystem, even if COVID-19 continues to linger across the world.

Like the GFC and even the dot com bust, we saw a large number of innovative tech startups to come out into the scene, and this should not be any different.

As funding returns to normal, startups should be able to seek funding for all kinds of projects, especially within areas of high growth.

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