While all tech startups have been affected by the COVID-19 pandemic, the extent of impact has been different for different target markets. A fewer number of large scale companies have had to shut down than other segments
Fremont, CA: The software industry is mostly operated digitally, and this may work well with the lockdowns being imposed. As a result, most experts believed that Silicon Valley and other centers of tech startups have been immune to the impacts made by COVID-19. However, a new survey of the tech sector conducted across the globe reveals that a significant portion of the industry is expected to starve and go out of business as capital funding and revenues continue to dry up due to low business. The coronavirus seems to have minimal impact on tech startup operations due to the ability of the workers to manage their work from home. However, a closer look at the financial and market conditions points towards a direr picture. A large number of investors are pulling back funds while few are even backing out of future commitments. This means the problems startups face today could extend beyond the short term.
While all tech startups have been affected by the COVID-19 pandemic, the extent of impact has been different for different target markets. A fewer number of large scale companies have had to shut down than other segments. However, a large percent of enterprises have been affected significantly. Retailers, logistics providers, agriculture and food processors, commercial real estate firms, manufacturers, and medical providers have all had their businesses upended even as they remain in business to some degree.
One of the reasons for the difference in impact is the scale of revenues for startups. For instance, customer-oriented startups have experienced growth in revenue during the lockdown compared to enterprise-focused startups. Another critical factor is the approach each startup takes towards the lockdown. Large companies are quickly slashing expenses to maintain positive revenue. On the other hand, locked down customers are also changing the purchase patterns towards digital products and services.
A PwC report shows that about half of 313 US CFOs surveyed in early April expect to reduce IT costs by canceling or deferring less-critical projects in 2020 as a result of lost income and higher business costs. However, a large number of CFOs expect there will be cutting down of facilities, general expenses, layoffs, and reduction in operation costs, rather than a reduction in IT costs. This also indicates an increase in job opportunities in the IT sector. However, even if IT investments remain relatively stable in 2020, tech startups may well find less opportunity from enterprise customers.
At the same time, despite the optimistic forecasts for customer-centric startups, the picture does not look good on the whole. The majority of the startups lack the resources to survive this lockdown. At the current rate of business, very few startups will be able to make it past September and even fewer past March 2021. Most of the startups in the tech sector were in the process of raising funds before the pandemic hit. Some of them had reached a verbal agreement with investors. While the funding process started to slow down when the lockdown was initiated, those who had already reached agreements also saw investors back out in large numbers.