from the world's big
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.
- The Startup Master Class Bundle | StackSocial ›
- How diversity helps startups succeed - Big Think ›
- Could the shift to remote working make tech more inclusive? - Big Think ›
Ever since we've had the technology, we've looked to the stars in search of alien life. It's assumed that we're looking because we want to find other life in the universe, but what if we're looking to make sure there isn't any?
Here's an equation, and a rather distressing one at that: N = R* × fP × ne × f1 × fi × fc × L. It's the Drake equation, and it describes the number of alien civilizations in our galaxy with whom we might be able to communicate. Its terms correspond to values such as the fraction of stars with planets, the fraction of planets on which life could emerge, the fraction of planets that can support intelligent life, and so on. Using conservative estimates, the minimum result of this equation is 20. There ought to be 20 intelligent alien civilizations in the Milky Way that we can contact and who can contact us. But there aren't any.
Building a personal connection with students can counteract some negative side effects of remote learning.
- Not being able to engage with students in-person due to the pandemic has presented several new challenges for educators, both technical and social. Digital tools have changed the way we all think about learning, but George Couros argues that more needs to be done to make up for what has been lost during "emergency remote teaching."
- One interesting way he has seen to bridge that gap and strengthen teacher-student and student-student relationships is through an event called Identity Day. Giving students the opportunity to share something they are passionate about makes them feel more connected and gets them involved in their education.
- "My hope is that we take these skills and these abilities we're developing through this process and we actually become so much better for our kids when we get back to our face-to-face setting," Couros says. He adds that while no one can predict the future, we can all do our part to adapt to it.
Frequent shopping for single items adds to our carbon footprint.
- A new study shows e-commerce sites like Amazon leave larger greenhouse gas footprints than retail stores.
- Ordering online from retail stores has an even smaller footprint than going to the store yourself.
- Greening efforts by major e-commerce sites won't curb wasteful consumer habits. Consolidating online orders can make a difference.
A pile of recycled cardboard sits on the ground at Recology's Recycle Central on January 4, 2018 in San Francisco, California.
Photo by Justin Sullivan/Getty Images<p>A large part of the reason is speed. In a competitive market, pure players use the equation, <em>speed + convenience</em>, to drive adoption. This is especially relevant to the "last mile" GHG footprint: the distance between the distribution center and the consumer.</p><p>Interestingly, the smallest GHG footprint occurs when you order directly from a physical store—even smaller than going there yourself. Pure players, such as Amazon, are the greatest offenders. Variables like geographic location matter; the team looked at shopping in the UK, the US, China, and the Netherlands. </p><p>Sadegh Shahmohammadi, a PhD student at the Netherlands' Radboud University and corresponding author of the paper, <a href="https://www.cnn.com/2020/02/26/tech/greenhouse-gas-emissions-retail/index.html" target="_blank">says</a> the above "pattern holds true in countries where people mostly drive. It really depends on the country and consumer behavior there."</p><p>The researchers write that this year-and-a-half long study pushes back on previous research that claims online shopping to be better in terms of GHG footprints.</p><p style="margin-left: 20px;">"They have, however, compared the GHG emissions per shopping event and did not consider the link between the retail channels and the basket size, which leads to a different conclusion than that of the current study."</p><p>Online retail is where convenience trumps environment: people tend to order one item at a time when shopping on pure player sites, whereas they stock up on multiple items when visiting a store. Consumers will sometimes order a number of separate items over the course of a week rather than making one trip to purchase everything they need. </p><p>While greening efforts by online retailers are important, until a shift in consumer attitude changes, the current carbon footprint will be a hard obstacle to overcome. Amazon is trying to have it both ways—carbon-free and convenience addicted—and the math isn't adding up. If you need to order things, do it online, but try to consolidate your purchases as much as possible.</p><p>--</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>
Chronic irregular sleep in children was associated with psychotic experiences in adolescence, according to a recent study out of the University of Birmingham's School of Psychology.