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5 ways life is getting harder for startups in 2020
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.
Between the economy, the civil unrest, and the pandemic, 2020 has been a difficult year so far to say the least. And it's still only June. The mind boggles when one thinks about what could still be in store for us.
While 2020 has been tough for everyone, each sector of society and the business ecosystem has its own set of circumstances to contend with.
What's happening with startups, specifically? While people often think of startups as all being venture-funded tech companies, this is hardly the case. Basically any small business that's yet to be profitable technically qualifies, and in this sense, the startup community is a microcosm for the economy as a whole. Indeed, over the past ten years, according to Statista, startups in the United States have created between 2.5 and 3.1 million jobs per year.
Let's take a look at the unique mesh of challenges that have made life extraordinarily difficult for startups in recent months.
1. Startup funding is harder to find.
With COVID-19 upending stock markets around the world, it's understandable that 46 percent of VCs are shifting their focus to their existing portfolios, much to the chagrin of startup founders.
Many VC funds have less capital available because their assets are tied up in the plummeting stock exchange. The Dow Jones reported its largest-ever single day fall of almost 3,000 points on March 16, 2020, and the NASDAQ lost over 1,300 points 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.
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, pointed out, "In the previous crisis valuations went down by 30% on average. We expect the same if not lower."
With VC funding dropping, 41 percent of startups are now in the "red zone," Startup Genome reports, with under three months of working capital remaining.
2. VCs are more rigorous about due diligence.
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.
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.
ContractZen's virtual data room solution 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.The data room "enables companies to keep up with the pace of business by having critical documents readily available at all times," wrote ContractZen CEO Markus Mikola. "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.
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 already dropped by 3 percent.
Best case scenario predictions foresee global GDP shrinking by 4.2 percent, while other opinions estimate economic output falling by 6 percent globally and 7.3 percent in the US. 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.
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.However, the healthcare sector is expanding, 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 Pipe 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.
While working from home has enabled many startups to increase work output, with 86 percent of remote workers 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.
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.
"Remote work impedes the creative sparks that fly when we are interacting with actual people rather than their thumbnails on Slack," journalist Kevin Roose pointed out.Remote working also raises cybersecurity issues. You need to give everyone access to data and platforms from their home networks, but without compromising security in the process. The 600 percent increase in reported phishing emails since February 2020 shows that hackers are not slow to take advantage.
5. The gig economy is in crisis.
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 "Uber for X." 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 freelance marketplace reviews have been generally positive.
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.
At the same time, the coronavirus crisis has led legislators to push to extend employee rights to gig workers. In California, officials sued Uber and Lyft 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.
After all, at a time when startups need to think creatively about survival, they also need to rethink how they protect their workers.
Upheaval in the startup world
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.
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Emotional intelligence is a skill sought by many employers. Here's how to raise yours.
- Daniel Goleman's 1995 book Emotional Intelligence catapulted the term into widespread use in the business world.
- One study found that EQ (emotional intelligence) is the top predictor of performance and accounts for 58% of success across all job types.
- EQ has been found to increase annual pay by around $29,000 and be present in 90% of top performers.
Researchers hope the technology will further our understanding of the brain, but lawmakers may not be ready for the ethical challenges.
- Researchers at the Yale School of Medicine successfully restored some functions to pig brains that had been dead for hours.
- They hope the technology will advance our understanding of the brain, potentially developing new treatments for debilitating diseases and disorders.
- The research raises many ethical questions and puts to the test our current understanding of death.
What's dead may never die, it seems<p>The researchers did not hail from House Greyjoy — "What is dead may never die" — but came largely from the Yale School of Medicine. They connected 32 pig brains to a system called Brain<em>Ex</em>. Brain<em>Ex </em>is an artificial perfusion system — that is, a system that takes over the functions normally regulated by the organ. The pigs had been killed four hours earlier at a U.S. Department of Agriculture slaughterhouse; their brains completely removed from the skulls.</p><p>Brain<em>Ex</em> pumped an experiment solution into the brain that essentially mimic blood flow. It brought oxygen and nutrients to the tissues, giving brain cells the resources to begin many normal functions. The cells began consuming and metabolizing sugars. The brains' immune systems kicked in. Neuron samples could carry an electrical signal. Some brain cells even responded to drugs.</p><p>The researchers have managed to keep some brains alive for up to 36 hours, and currently do not know if Brain<em>Ex</em> can have sustained the brains longer. "It is conceivable we are just preventing the inevitable, and the brain won't be able to recover," said Nenad Sestan, Yale neuroscientist and the lead researcher.</p><p>As a control, other brains received either a fake solution or no solution at all. None revived brain activity and deteriorated as normal.</p><p>The researchers hope the technology can enhance our ability to study the brain and its cellular functions. One of the main avenues of such studies would be brain disorders and diseases. This could point the way to developing new of treatments for the likes of brain injuries, Alzheimer's, Huntington's, and neurodegenerative conditions.</p><p>"This is an extraordinary and very promising breakthrough for neuroscience. It immediately offers a much better model for studying the human brain, which is extraordinarily important, given the vast amount of human suffering from diseases of the mind [and] brain," Nita Farahany, the bioethicists at the Duke University School of Law who wrote the study's commentary, told <em><a href="https://www.nationalgeographic.com/science/2019/04/pig-brains-partially-revived-what-it-means-for-medicine-death-ethics/" target="_blank">National Geographic</a>.</em></p>
An ethical gray matter<p>Before anyone gets an <em>Island of Dr. Moreau</em> vibe, it's worth noting that the brains did not approach neural activity anywhere near consciousness.</p><p>The Brain<em>Ex</em> solution contained chemicals that prevented neurons from firing. To be extra cautious, the researchers also monitored the brains for any such activity and were prepared to administer an anesthetic should they have seen signs of consciousness. </p><p>Even so, the research signals a massive debate to come regarding medical ethics and our definition of death. </p><p>Most countries define death, clinically speaking, as the irreversible loss of brain or circulatory function. This definition was already at odds with some folk- and value-centric understandings, but where do we go if it becomes possible to reverse clinical death with artificial perfusion?</p><p>"This is wild," Jonathan Moreno, a bioethicist at the University of Pennsylvania, told <a href="https://www.nytimes.com/2019/04/17/science/brain-dead-pigs.html" target="_blank">the <em>New York Times</em></a>. "If ever there was an issue that merited big public deliberation on the ethics of science and medicine, this is one."</p><p>One possible consequence involves organ donations. Some European countries require emergency responders to use a process that preserves organs when they cannot resuscitate a person. They continue to pump blood throughout the body, but use a "thoracic aortic occlusion balloon" to prevent that blood from reaching the brain.</p><p>The system is already controversial because it raises concerns about what caused the patient's death. But what happens when brain death becomes readily reversible? Stuart Younger, a bioethicist at Case Western Reserve University, <a href="https://www.nature.com/articles/d41586-019-01216-4#ref-CR2" target="_blank">told <em>Nature</em></a> that if Brain<em>Ex</em> were to become widely available, it could shrink the pool of eligible donors.</p><p>"There's a potential conflict here between the interests of potential donors — who might not even be donors — and people who are waiting for organs," he said.</p><p>It will be a while before such experiments go anywhere near human subjects. A more immediate ethical question relates to how such experiments harm animal subjects.</p><p>Ethical review boards evaluate research protocols and can reject any that causes undue pain, suffering, or distress. Since dead animals feel no pain, suffer no trauma, they are typically approved as subjects. But how do such boards make a judgement regarding the suffering of a "cellularly active" brain? <a href="https://bigthink.com/philip-perry/after-death-youre-aware-that-youve-died-scientists-claim" target="_blank">The distress of a partially alive brain</a>? </p><p>The dilemma is unprecedented.</p>
Setting new boundaries<p>Another science fiction story that comes to mind when discussing this story is, of course, <em>Frankenstein</em>. As Farahany told <em>National Geographic</em>: "It is definitely has [sic] a good science-fiction element to it, and it is restoring cellular function where we previously thought impossible. But to have <em>Frankenstein</em>, you need some degree of consciousness, some 'there' there. [The researchers] did not recover any form of consciousness in this study, and it is still unclear if we ever could. But we are one step closer to that possibility."</p><p>She's right. The researchers undertook their research for the betterment of humanity, and we may one day reap some unimaginable medical benefits from it. The ethical questions, however, remain as unsettling as the stories they remind us of.</p>
A study published Friday tested how well 14 commonly available face masks blocked the emission of respiratory droplets as people were speaking.
- The study tested the efficacy of popular types of face masks, including N95 respirators, bandanas, cotton-polypropylene masks, gaiters, and others.
- The results showed that N95 respirators were most effective, while wearing a neck fleece (aka gaiter) actually produced more respiratory droplets than wearing no mask at all.
- Certain types of homemade masks seem to be effective at blocking the spread of COVID-19.
Fischer et al.<p>A smartphone camera recorded video of the participants, and a computer algorithm counted the number of droplets they emitted. To establish a control trial, the participants spoke into the box both with and without a mask. And to make sure that the droplets weren't in fact dust from the masks, the team conducted more tests by "repeatedly puffing air from a bulb through the masks."</p>
Fischer et al.<p>The results, published Friday in <a href="https://advances.sciencemag.org/content/early/2020/08/07/sciadv.abd3083" target="_blank">Science Advances</a>, showed that some masks are pretty much useless. In particular, neck fleeces (also called gaiters) actually produced more respiratory droplets compared to the control trial — likely because the fabric breaks down big droplets into smaller ones.</p><p>The top three most effective masks were N95 respirators, surgical masks, and polypropylene-cotton masks. Bandanas performed the worst, but were slightly better than wearing no mask at all.</p>
Fischer et al.<p>Research on mask efficacy is still emerging. But the new results seem to generally align with <a href="https://newsroom.wakehealth.edu/News-Releases/2020/04/Testing-Shows-Type-of-Cloth-Used-in-Homemade-Masks-Makes-a-Difference" target="_blank" rel="noopener noreferrer dofollow">prior tests</a>. For example, a study from June published in <a href="https://aip.scitation.org/doi/10.1063/5.0016018" target="_blank" rel="noopener noreferrer dofollow">Physics of Fluid</a> found that bandanas (followed by folded handkerchiefs) were least effective at blocking respiratory droplets. That same study also found, as <a href="https://newsroom.wakehealth.edu/News-Releases/2020/04/Testing-Shows-Type-of-Cloth-Used-in-Homemade-Masks-Makes-a-Difference" target="_blank" rel="noopener noreferrer dofollow">others have</a>, that masks made from multiple layers of quilter's fabric were especially effective at blocking droplets.</p><p>The researchers hope other institutions will conduct similar experiments so the public can see how well different masks can block the spread of COVID-19.</p><p style="margin-left: 20px;">"This is a very powerful visual tool to raise awareness that a very simple masks, like these homemade cotton masks, do really well to stop the majority of these respiratory droplets," Fischer told CNN. "Companies and manufacturers can set this up and test their mask designs before producing them, which would also be very useful."</p>
Sharing QAnon disinformation is harming the children devotees purport to help.
- The conspiracy theory, QAnon, is doing more harm than good in the battle to end child trafficking.
- Foster youth expert, Regan Williams, says there are 25-29k missing children every year, not 800k, as marketed by QAnon.
- Real ways to help abused children include donating to nonprofits, taking educational workshops, and becoming a foster parent.
Real ways you can help stop child trafficking<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="21fc2dc85391501eec28c4bf46d7db15"><iframe type="lazy-iframe" data-runner-src="https://www.youtube.com/embed/AXL0q9jNZGU?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span><p>Williams is the founder and CEO of <a href="http://www.seenandheard.org/" target="_blank">Seen and Heard</a>, a Los Angeles-based nonprofit that helps foster youth develop character through the performing arts. She's been involved with foster youth for years; I <a href="https://bigthink.com/politics-current-affairs/child-sex-trafficking" target="_self">wrote about her work</a> in child trafficking just over a year ago. Tragically, since that time, the situation for these children has only gotten worse, in large part because of QAnon.</p><p>Williams says child trafficking is an easy cause to rally people together. Fear is also a powerful unifying force, one that QAnon believers are already primed for via the news they consume. Almost every parent cares about their children, making them the ideal target to solidify groups. </p><p>The real problem, she says, is that the youth she works with are falling for these conspiracy theories. Trauma is a particularly powerful tool for indoctrination. If you're a teenager that's been abducted or abused, your trust level is already extremely low. Then you read about a global cabal of powerful men (and a few women) secretly abusing children, and the narrative seems ready-made for your personal history.</p><p>When Williams tried to "lovingly and kindly correct" the youth she was working with after learning about the Wayfair conspiracy, the girls' response was, "well, who owns the media?" </p><p style="margin-left: 20px;">"She goes from this small little thing to a QAnon talking point. I've been thinking about why she would believe such a preposterous idea—and there are others; it's not just one student, and they're in in deep. I think that when something horrific happens to you as a child, it's a lot easier to distance yourself from the immediate reality that it was an uncle or a parent or a sibling that hurt you. By detaching from that immediate person, they project it onto Bill Gates or Chrissy Teigen. Then it's not so personal, it's global." </p>
A man wear a shirt with the words Q Anon as he attends a rally for President Donald Trump at the Make America Great Again Rally being held in the Florida State Fair Grounds Expo Hall on July 31, 2018 in Tampa, Florida.
Photo by Joe Raedle/Getty Images<p>As Williams mentions, there are over 30,000 kids in foster care in the Los Angeles area alone. It's easy to fall through the cracks. The systems in place aren't perfect; they're certainly underfunded. When you're in a system trying to support you yet isn't capable of doing so, viewing the world as imperfect, and even harmful, becomes the lens through which you see reality. Again, this makes for a perfect indoctrination tool.</p><p>One popular QAnon talking point is that 800,000 children are missing. As Williams says, child trafficking experts "don't buy this for a minute." The number makes for a good meme but a poor representation of the problem. </p><p>To source better data, Williams turns to the <a href="https://www.missingkids.org/" target="_blank">National Center for Missing and Exploited Children</a> (NCMEC) and the <a href="https://www.fbi.gov/services/cjis/ncic" target="_blank" rel="noopener noreferrer dofollow">National Crime Information Center</a> (NCIC). An important factor when reading data: if a teacher <em>and</em> a caregiver report a missing child to NCIC, that counts as two children, not one, which accounts for some of the fluctuations in numbers. In total, between 25,000 and 29,000 kids go missing every year. Importantly, 94 percent of those children are recovered within four to six weeks. </p><p style="margin-left: 20px;">"They're not documenting the recovery rate. It's not like these numbers are perpetually hanging out there. So this 800,000 number is just ludicrous." </p><p>Williams compares what's going on to Black Lives Matter. Blacking out your Instagram profile picture is performative. It signals that you actually care, which is great, but if you're not supporting Black-owned businesses, for example, there are no teeth to your activism. </p><p>Of course, blacking out your profile doesn't cause the real-world harm the QAnon virus does. Sharing misinformation is ultimately harmful to the children in need of help. Williams offers the resources below—ranging from donations to nonprofits to educational trainings to becoming a foster parent—for people that actually want to do something to help victims of sexual and physical abuse. They might not make a great Twitter meme, but in the actual world, this support makes all the difference. </p><p><strong>To report abuse/neglect, call the child abuse hotline: 800.540.4000 (LA county) / 800.422.4453 (National)</strong></p><ul><li>Support anti-trafficking organizations by donating to <a rel="noopener noreferrer dofollow" href="http://savinginnocence.org/" target="_blank">Saving Innocence</a>, which runs the continuum of care from rescue to recovery, <a href="http://gozoe.org/" target="_blank" rel="noopener noreferrer dofollow">Zoe</a>, a reputable faith-based organization, and <a rel="noopener noreferrer dofollow" href="https://withtwowings.org/" target="_blank">Two Wings</a>, which helps to rehabilitate female survivors</li><li><a rel="noopener noreferrer dofollow" href="http://www.nolabrantleyspeaks.org/" target="_blank">Nola Brantley</a> offers in-person and online trainings to help combat the commercial sexual exploitation of children</li><li><a rel="noopener noreferrer dofollow" href="http://instagram.com/imrebeccabender" target="_blank">Rebecca Bender</a> is a trafficking survivor that runs "Myth Busters," which combats conspiracy theory disinformation</li><li>The <a href="https://www.instagram.com/missingkids/" target="_blank" rel="noopener noreferrer dofollow">National Center</a> of Missing and Exploited Children</li><li>Operation <a href="https://www.instagram.com/ourrescue/" target="_blank" rel="noopener noreferrer dofollow">Underground Railroad </a></li><li><a href="https://www.instagram.com/defendinnocence/" target="_blank" rel="noopener noreferrer dofollow">Defend Innocence</a> offers tips for parents and caregivers to keep kids safe</li></ul><p><span></span>--</p><p><em>Stay in touch with Derek on <a href="http://www.twitter.com/derekberes" target="_blank">Twitter</a>, <a href="https://www.facebook.com/DerekBeresdotcom" target="_blank">Facebook</a> and <a href="https://derekberes.substack.com/" target="_blank">Substack</a>. His next book is</em> "<em>Hero's Dose: The Case For Psychedelics in Ritual and Therapy."</em></p>