Startup Genome has launched a new “COVID-19 and Startup Ecosystems Series” to better understand the impact of the pandemic on startup ecosystems and to help founders and policymakers get through the storm.
The global economic fallout from COVID-19 has been sudden and far reaching, and startup ecosystems around the world have not escaped it’s effects.
Today Startup Genome released a white-paper on The Impact of COVID-19 on Global Startup Ecosystems, as well as the Startup Genome Global Policy Database for governments to learn from each others’ initiatives.
Startup Genome is a world leading policy advisory and research organization for governments and public-private partnerships working to improve their startup ecosystems.
Key findings in the report, as provided by Arnobio Morelix of Startup Genome, include:
- Chinese VC deals have contracted between 50 and 57 percentage points since the onset of the crisis in the first two months of the year, relative to the rest of the world. If a drop like that happens globally, even for just two months, approximately $28 billion in startup investment will go missing in 2020, with a dramatic impact on companies.
- If the drop in investments continues much further beyond two months and the COVID-19 shocks trigger an economic contraction, we can look at the previous two recessions (2000-2001 and 2007-2009) as historical analogies for the current moment. In those cases, the total drops in global VC investments were between 21.6 and 29.3 percent over twelve months — the equivalent of a decline of up to $86.4 billion in global VC investments, when projected to our current context. After the past two recessions, global VC investments took one (2007-2008) and three (2000-2001) years to recover to pre-contraction levels. Related, technology IPOs in the U.S. dropped by 90 percent following the last two recessions.
- Crisis begets opportunity in more than one way. During the past two recessions, although fewer dollars were invested, more companies got funded, suggesting that businesses that are able to become cash efficient might become even more likely to raise money following a recession, albeit at lower valuations and lower total funds raised. In addition, over half of Fortune 500 companies were created during a recession or bear market, and over 50 tech unicorns, collectively valued at $145.2 billion, were founded during the 2007-2009 recession years. These include Airbnb, which was created because the entrepreneurs behind it could not afford to pay rent at the time.
- New and young firms are the main net job creators in the economy, and this is especially true during recessions, when older firms are net job destroyers. Recently, the U.S. saw unemployment insurance requests hit 3.3 million people in a single week: the highest such number recorded since 1967, when the Department of Labor started publishing figures on this. This need for net new jobs means the economy needs startups now even more than usual.
- Governments in many places around the world are helping founders through these difficult times. Denmark, for example, is covering 75% of salaries for companies that do not cut staff, while Germany is offering to cover 60% of the new salaries for employees reduced from full to part time.
Get a copy of the full report here.