Early-stage companies, in tech or otherwise, are facing a unique mesh of challenges this year.
- With VC funding dropping, 41 percent of startups are now in the "red zone," with under three months of working capital remaining.
- Service sectors that require in-person interactions have been hammered, and the gig economy is being litigated into oblivion.
- Even with the best of tools and platforms, remote work can have its drawbacks, from virtual collaboration learning curves to cybersecurity vulnerabilities.
1. Startup funding is harder to find.<p>With COVID-19 upending stock markets around the world, it's understandable that <a href="https://www.slush.org/article/50-of-startups-have-6-month-to-live-other-insights-from-our-covid-19-survey/" target="_blank">46 percent of VCs</a> are shifting their focus to their existing portfolios, much to the chagrin of startup founders.</p><p>Many VC funds have less capital available because their assets are tied up in the plummeting stock exchange. The Dow Jones <a href="https://www.statista.com/statistics/1104278/weekly-performance-of-djia-index/" target="_blank">reported its largest-ever single day fall</a> of almost 3,000 points on March 16, 2020, and the <a href="https://www.marketplace.org/2020/03/31/how-the-markets-are-reacting-to-covid-19/" target="_blank">NASDAQ lost over 1,300 points</a> in the past months. With their eyes on the markets, investors are reluctant to tie up capital in early-stage startups, which are seen as risky gambles. </p><p>At the other end of the life cycle, valuations have dropped significantly, leaving founders looking at lower payouts when they do manage to negotiate successful exits. As Andris Berzins, partner at Change Ventures, <a href="https://startupwiseguys.com/vc-investment-in-times-of-crisis/" target="_blank">pointed out</a>, "In the previous crisis valuations went down by 30% on average. We expect the same if not lower." </p><p>With VC funding dropping, 41 percent of startups are now in the "red zone," <a href="https://startupgenome.com/blog/covid19-insights-global-startup-survey" target="_blank">Startup Genome reports</a>, with under three months of working capital remaining. </p>
2. VCs are more rigorous about due diligence.<p>Investors who are still willing to fund new ventures are ramping up their focus on due diligence. They have more time to spend on the process, they're facing increased pressure not to make mistakes, and they need to compensate for video pitches that prevent them from building trust through face-to-face meetings.</p><p>Today's VCs are demanding to see more reports, and want due diligence documents to be better organized and easier to consume. Startups can expect increased scrutiny of their projections, cash runways, burn rates, and demand for reports on the impact that coronavirus has been having on their current sales and future plans. </p><p><a href="https://www.contractzen.com/datarooms/" target="_blank">ContractZen's virtual data room solution</a> is emerging as one of the go-to ways founders are meeting these new demands and impressing investors. Essentially a corporate document vault reinvented for the digital age, it enables you to share files at need while still keeping every item securely protected from malicious actors. With this solution, tags and metadata search help you to swiftly gather the right reports and documents from relevant periods and collect them into an ad hoc, situation-specific virtual data room. Once it's set up, you just need to grant access and then share the link to the VDR to give VCs access to all your due diligence files, speeding up your response time.</p>The data room "enables companies to keep up with the pace of business by having critical documents readily available at all times," wrote ContractZen <a href="https://blog.contractzen.com/en/what-is-a-virtual-data-room-and-what-makes-it-so-powerful-for-corporate-file-sharing" target="_blank">CEO Markus Mikola</a>. "When your documents are readily available, it increases the trust between the two parties, smoothing the path of business even more."
3. Markets are shrinking.<p>All around the world, unemployment is rising, revenue and trade are dropping, and businesses are collapsing, causing markets to shrink in every sector. Data from Q1 2020 shows that global trade values have <a href="https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2369" target="_blank">already dropped by 3 percent</a>.</p><p>Best case scenario predictions foresee <a href="https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020" target="_blank">global GDP shrinking by 4.2 percent</a>, while other opinions estimate economic output falling by <a href="https://www.oecd.org/coronavirus/en/" target="_blank">6 percent globally and 7.3 percent in the US</a>. If a second wave of infection hits, that could worsen to a drop of 7.6 percent around the world and 8.5 percent in the U.S. </p><p>This economic slowdown has an inevitable impact on demand for every sector as consumers and businesses tighten their belts. Three out of every four startups work in industries severely affected by the COVID-19 crisis, Startup Genome's data indicates. The tourism and travel industries, for example, are in freefall and are unlikely to recover for some time. Service sectors that require in-person interactions have been hammered too, and many manufacturing companies have been affected due to disrupted supply and delivery chains.</p>However, the <a href="https://bigthink.com/politics-current-affairs/profiting-from-coronavirus?rebelltitem=1#rebelltitem1" target="_self">healthcare sector is expanding</a>, and the software as a service (SaaS) vertical is also performing reasonably well. And for SaaS companies that need more cash flow, a new service called <a href="https://www.pipe.com/" target="_blank">Pipe</a> provides loans based on the startup's annual run rate (ARR), a commonly used metric that serves as a rolling estimate of revenues over the year ahead.
4. WFH poses new challenges.<p>While working from home has enabled many startups to increase work output, with <a href="https://www.zdnet.com/article/majority-of-workers-are-more-productive-and-communicative-at-home/" target="_blank">86 percent of remote workers</a> rating their productivity as excellent or good, it's been a difficult transition. Moving back to the office will be challenging as well, and if a second wave hits, we could have to go through it all over again.</p><p>Even with the best of tools and platforms, remote work can have its drawbacks. Communication is WFH's weakest link, especially for the many employees who were new to remote working. Collaborating with colleagues from a distance requires a whole new set of skills, and startups struggle to transmit company culture to new hires over Zoom. Sometimes you need a face-to-face conversation in order to iron out misunderstandings, enable effective collaboration and spark creativity. </p><p>"Remote work impedes the creative sparks that fly when we are interacting with actual people rather than their thumbnails on Slack," journalist <a href="https://www.nytimes.com/2020/03/10/technology/working-from-home.html" target="_blank">Kevin Roose pointed out</a>.</p>Remote working also <a href="https://bigthink.com/technology-innovation/work-from-home-cybersecurity" target="_self">raises cybersecurity issues</a>. You need to give everyone access to data and platforms from their home networks, but without compromising security in the process. The <a href="https://www.infosecurity-magazine.com/news/covid19-drive-phishing-emails-667/" target="_blank">600 percent increase in reported phishing emails</a> since February 2020 shows that hackers are not slow to take advantage.
5. The gig economy is in crisis.<p>A whole generation of startups have built their businesses on the gig economy, whether they rely on freelancers to stay lean, serve as a conduit between the established business world and gig workers, or created their business model as "<a href="https://www.producthunt.com/e/uber-for-x" target="_blank">Uber for X</a>." Many of today's leading marketplaces for gigs have built solid reputations among other startups, which depend on them to source temporary, project-based talent, often on the cheap. No wonder <a href="https://www.lancerreview.com/" target="_blank">freelance marketplace reviews</a> have been generally positive.</p><p>But with the whole gig economy rocking on its base, startups and workers are suffering together. One-time startup success stories like Lyft and Airbnb have seen demand implode. Shared workspaces have fallen out of favor. About 26 percent of startups have had to say goodbye to 60 percent or more of their staff, according to Startup Genome.</p><p>At the same time, the coronavirus crisis has led legislators to push to extend employee rights to gig workers. In California, officials <a href="https://www.bloomberg.com/news/articles/2020-05-05/uber-lyft-sued-by-california-officials-over-driver-benefits" target="_blank">sued Uber and Lyft</a> for refusing to give employee benefits to their drivers. Gig workers are increasingly talking about unionizing, which would leave businesses to hope that their demands would be merciful. </p><p>After all, at a time when startups need to think creatively about survival, they also need to rethink how they protect their workers. </p>
Upheaval in the startup world<p>What with shrinking markets and chaos in the gig economy, drops in available VC funding, an increased emphasis on due diligence, and the unique challenges of WFH, startups are going through an unprecedented period of difficulty. With so much that's outside of founders' control, it's vital to implement the right policies. </p>
The pandemic has given us an early glimpse at how truly disruptive the fourth industrial revolution may be, and the measures we'll need to support human dignity.
- The coronavirus crisis has acted as a catalyst for two powerful transformative forces: automation and universal basic income.
- These two intertwined forces will undoubtedly gain steam, writes Frederick Kuo, and the pandemic will hasten the acceptance of them from a scale of decades to years or mere months.
- This crisis has ushered in a glimpse of what a dystopian future could look like as a rapidly advancing fourth industrial revolution inevitably causes severe disruption in our economy and labor structure.
COVID-19 will expedite automation<p>As the mobility of human beings grinds to a halt due to public health directives and fears of infection, our need for food, resources and social connection has forced us to increasingly rely on technology to fill urgent gaps. In the United States, Amazon is seizing this opportunity to further entrench its <a href="https://nypost.com/2020/03/31/coronavirus-is-only-making-jeff-bezos-and-amazon-more-powerful/" target="_blank">domination</a>, while in China, robots are being deployed to serve those in <a href="https://www.cnbc.com/2020/03/18/how-china-is-using-robots-and-telemedicine-to-combat-the-coronavirus.html" target="_blank">quarantine</a>. In a world where fear of contact with other humans has become pervasive, businesses that can adapt quickly and significantly automate their supply lines and cut points of human contact stand to thrive in this new market. </p><p>Whereas before this crisis, the need for automation was mainly driven by the desire for increased profits and improved efficiency, the momentous shift in public consciousness today regarding simple human contact may make automation almost a necessity for many businesses to survive. When humans trust a robot to handle or deliver their food or goods more than they trust another human, or when crowded workplaces present public health hazards, jobs for humans will be unceremoniously eliminated. Given existing technologies, experts have estimated <a href="https://www.brookings.edu/blog/the-avenue/2020/03/24/the-robots-are-ready-as-the-covid-19-recession-spreads/" target="_blank">36 million jobs</a> may be vulnerable, ranging from trucking and delivery to food service and repetitive white collar jobs, the labor market may face a significant restructure driven by <a href="https://www.vox.com/recode/2020/3/31/21200010/coronavirus-recession-automation-brookings-mark-muro" target="_blank">new technology</a> and a radically altered market for those technologies. In a recent survey conducted by auditing firm <a href="https://www.theguardian.com/world/2020/mar/30/bosses-speed-up-automation-as-virus-keeps-workers-home" target="_blank">Ernst & Young</a>, more than half of company bosses throughout 45 countries had begun implementing existing plans to fast track automation.</p>
Mainstream acceptance of UBI<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="44c33c426c79ad9f2c6148d8f9f63bc4"><iframe type="lazy-iframe" data-runner-src="https://www.youtube.com/embed/UEsK7hpIkVI?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span><p>In early 2019, <a href="https://time.com/5804656/ubi-yang-coronavirus/" target="_blank">Andrew Yang</a> began gaining news coverage regarding the central theme of his presidential campaign: $1,000 a month in universal basic income (UBI) dispersed to every American. His primary argument for the necessity of this safety net rested on the belief that the coming age of automation was about to inundate vast scores of our current jobs with a shrinking percentage of elite tech corporations gobbling up more and more of the profit. When Yang first introduced his vision, it seemed to belong to a remote dystopian future with little relevance to the booming economy and low unemployment figures that was the reality until only weeks ago. On the right, he was lambasted as a communist seeking to turn American citizens into dependents to the state. On the left, his ideas were dismissed as other Democratic hopefuls touted the Green New Deal and job programs.</p><p>Fast forward to today and Andrew Yang's UBI theory has moved straight into the forefront. Trump, perhaps cognizant that the "Yang Gang" pulled a great deal of support from his own supporters, quickly recognized the popularity of his ideas and the need to provide supplemental income to Americans as shelter-in-place directives began to take hold throughout the country. The massive <a href="https://www.nbcnews.com/politics/congress/coronavirus-checks-direct-deposits-are-coming-here-s-everything-you-n1168936" target="_blank">$2 trillion</a> coronavirus emergency stimulus will provide every American earning $75,000 or less, regardless of current employment, a check of $1,200 per person and $500 per child for the duration of the crisis. There has been little debate over the necessity of this measure because it has proven to be widely popular to the public, regardless of political standing. It lifts some of the immediate and pressing need to work and helps take some of the edge off from isolating at home, thus contributing to a quicker resolution of this health crisis by sending fewer people out into the streets.</p>
A bipartisan group of economists, technology and public health experts, and ethicists developed a three-part plan to swiftly and safely reopen the American economy. Could it work?
- The three key parts of the plan are testing, contact tracing, and supported isolation.
- The report calls for significantly increased COVID-19 testing, as well as the creation of a centralized Pandemic Testing Board with "strong but narrow powers."
- The plan would play out over four phases, the first of which involves stabilizing the essential workforce and prioritizing testing for these individuals.
Central banks face a Herculean task to keep economies right-side up.
- In the shadow of COVID-19, we're rapidly approaching the point where there's nothing to buy, and no one has any money to buy it with.
- Central bankers have responded to the coronavirus's economic fallout by tinkering with interest rates and instituting quantitative easing (QE) plans.
- Artificially lowering interest rates essentially incentivizes debt and discourages fiscal responsibility, whereas other measures, such as subsidized furloughs, may be more effective and better suited to the current situation.
Adjusting interest rates could be actively damaging<p>Interest rates cuts have long been the tool of choice for central banks, but that doesn't mean they're the right tool.</p><p>Artificially lowering interest rates essentially incentivizes debt and discourages fiscal responsibility at times when businesses and individuals need to focus on being frugal and sustainable. As a generation saw huge amounts wiped off their pensions, they learned to stop saving and embrace the debt. Businesses and whole governments took the same approach, borrowing more and more in order to invest in their own expansion. </p><p>While this creates an image of a healthy economy, it's just a dangerous mirage. Much of the developed world now inhabits an unsteady bubble of personal debt, corporate debt, and government debt, encouraged by the consistently low interest rates, leaving no one able to bear a recession when interest rates have nowhere to go but up.</p><p>As Peter Schiff, CEO of Euro Pacific Capital, <a href="https://www.youtube.com/watch?v=_FzuwGCXY34" target="_blank">puts it</a>, the current crisis isn't caused by COVID-19, but by the unsustainable bubble of debt. "Too many analysts are focusing on the pin that burst the bubble, but the problem is really the bubble not the pin," he notes. Indeed, many pundits had long predicted a recession in early 2020 – it's easy to argue that if it hadn't been sparked by coronavirus, it would have been sparked by something else. </p><p>In this context, cutting interest rates is simply not helpful and is actively damaging. These steps only increase the amount of debt borne by central banks, inflate the bubble further, and make the situation worse. The recent Federal Reserve interest rate cut didn't help stabilize the markets much, showing that investors no longer have much faith in rate cuts. </p><p>What are we seeking to incentivize, anyway? Does society really benefit by people having the discretionary income to spend more time in stores and restaurants? The nature of the current situation calls for a specific type of austerity. </p><p>On the other hand, it's true that raising interest rates now would be similarly catastrophic. What businesses need right now is enough cash to stay afloat until after the initial crisis has passed. </p>
Central banks can be more creative when pressed<p>Alongside the interest rate cuts and QE measures, we are seeing some more creative moves. The Federal Reserve agreed to buy some corporate and municipal debt, which is, admittedly, another QE measure but also a way of promising cash to large corporations. However, they are only offering this to corporations above a certain scale, which could be problematic because there are so many companies that don't pass the bar.</p><p>The Federal Reserve also moved to make it easier for banks to give loans to small businesses, expanding SBA loans and opening a lending facility that will allow it to buy securities backed by student, auto, credit card, and SBA business loans. But this might not be enough to keep small businesses afloat, and the plan to support SMBs is vague and has no start date. Plus, as mentioned above, such measures only encourage the debt bubble to increase.</p><p>We are seeing more creative measures from other central bankers. </p><p>In the UK, a <a href="https://www.bloomberg.com/news/articles/2020-03-26/u-k-s-sunak-pledges-coronavirus-support-for-self-employed" target="_blank">£350 billion stimulus package</a> includes a government guarantee to pay workers' wages at 80 percent of their pre-corona amount, as well as a £9 billion package to <a href="https://www.bbc.com/news/uk-52044542" target="_blank">support the self-employed</a>. While the package also involves quantitative easing and the offer of government-backed loans to small businesses, which perpetuates the debt cycle, these steps should help ensure that businesses still exist post-corona and people still have jobs, so the economy can pick up again in a more natural way. </p><p>Denmark's ambitious 90-day Temporary Compensation Scheme, moreover, is particularly compelling. Essentially a variant of unemployment insurance, this is "a temporary program of public furlough assistance that allows firms to place workers on paid leaves of absence," as MIT Assistant Professor of Finance Daniel Greenwald <a href="https://marker.medium.com/a-traditional-economic-stimulus-wont-work-here-s-what-might-2a27dce9c1b5" target="_blank">describes it</a>. </p><p>Greenwald sees this as a great option for the U.S., since "The businesses would be required to maintain each worker's health coverage during the furlough, and return them to employment afterwards." Plus, no incentivized debt and no unnecessary spreading of COVID-19 infection.</p>As a whole, though, the EU has its hands full. The ECB's <a href="https://www.ecb.europa.eu/press/blog/date/2020/html/ecb.blog200319~11f421e25e.en.html" target="_blank">€750 billion emergency fund</a> focused on QE measures, promising to buy government bonds to shore up the sovereign and corporate debt that threatens to cripple some economies. The ECB is also offering €3 trillion of liquidity through refinancing operations at -0.75 percent. These steps will probably have disastrous long-term effects on eurozone inflation, but it's difficult to see what else the ECB could have done when Italy and Spain are on their economic knees.
A cure that’s worse than the malady<p>While the recession we're entering was precipitated by the coronavirus, it was probably inevitable even without the health scare and its domino effect. Interest rate cuts and QE measures are the first weapon of choice for central banks, but they are arguably the true cause of any ongoing economic woes.</p> <p>Central banks that focus on measures to keep workers in jobs and businesses solvent are taking the right steps to deal with the short-term trauma of corona-induced slowdown, but they may not be able to prevent the long-term fallout of years of a fiscal policy that kept rates low, debt high, and savings non-existent. </p>
Americans consume the most toilet paper in the world but it's a very wasteful product to manufacture, according to the numbers.
- Toilet paper consumption is unsustainable and requires a tremendous amount of resources to produce.
- Americans use the most toilet paper in the world and have been hoarding it due to coronavirus.
- Alternatives to toilet paper are gaining more popularity with the public.
A senior citizen gets the last pack of toilet rolls at Sainsbury's Supermarket on March 19, 2020 in Northwich, United Kingdom.
Photo by Christopher Furlong/Getty Images
Women buy toilet paper from tradesman in street market by the City Wall, Xian, China. March 14, 2020.
Photo by Tim Graham/Getty Images
Customers purchase toilet paper at a Target store in Orlando, FL during the panic shopping. March, 2020.
Credit: Paul Hennessy / Echoes Wire/Barcroft Media via Getty Images