COVID-19 Impact on Startup Industry & VC Markets in US
I was asked to comment on the impact of the coronavirus on the startup & VC industry in the US by my Aussie colleagues back home so I thought it might be helpful to others to repost my email here. Caveat: NY-focused and my email grammar is truly terrible!
Unemployment scared the Fed into action...
Treasury Secretary Steve Mnuchin warned the Senate GOP members that without action, the US unemployment rate could spike to a stunning 20%... with a total labor force or around 160 million, that would mean a sudden spike to over 30 million unemployed Americans In New York specifically, the unemployment website was overwhelmed (crashed) Monday as the coronavirus pandemic put tens of thousands of people across the state out of work...
In the US we have seen a virus fiscal package swell from U$500bn to US$850bn to US$1trn to US$1.2trn... that's 5.6% of GDP!
What does this mean for private markets?
Because at the start of the quarter, private markets were better capitalized than ever before (we hit record numbers of VC funds raised in recent years)... there is ultimately still a lot of capital searching for quality returns. Private markets (and this includes everything from PE to private debt and real assets) still aren't immune though - broad market turbulence may have a slight impact (it always takes longer for macro trends to trickle into private markets as we know)... the main risk the industry faces is a genuine economic deterioration..."the IPO market underpinned record VC exits in 2019, but that seems unlikely to repeat in 2020, with several high-profile listings rumored to be delayed" (PitchBook's COVID-19, the Sell-Everything Trade, and the Impact on Private Markets" report for more on this...)
What are VCs in the US doing?
Based on the limited phone calls I've had, VCs are:
- still seeding but slowing down on larger checks. Pre-seed and seed capital seem likely to continue to be bountiful but already am hearing about Series As that are getting pushed back and even some larger seed rounds getting put on ice
- preserving capital, spending their dry powder on their existing businesses rather than to fund new ones
- expecting declines in valuation
Yet, online in blogs and in the Twittersphere, it seems like much of the venture business is “open for business” according to Fred Wilson at Union Square Ventures and there are many smart investors who are continuing to invest (cautiously) (and via zoom) according to this Forbes article... mind you, that was 6 days ago and we know how much can change in a week re. Corona!
Increased funding flows for certain industries...
- Interesting spikes in demand in certain tech industries e.g telemedicine, life sciences, disease testing startups
- Grants/funding as an incentive for startups to redirect their operations to help in the crisis e.g. NYC startup Air.Co changing their production from vodka from carbon to help with hand sanitizers
- Governments and foundations are likely to be major investors in health products and services that can address future health crises (European Union agreed to invest up to €80 million in CureVac .. ok, that's not US but still relevant)
-The U.S. government is in active talks with Facebook, Google and other companies/health experts about how they can use location data gleaned from Americans’ phones to combat corona, including tracking whether people are keeping one another at safe distances to stem the outbreak.
What the startup industry realizes it needs to solve in the remote work/conferencing category...
- A broader and more powerful platform that could mimic big physical events such as Google IO, WWDC (Apple Worldwide Developers Conference), SXSW in Austin which all got canceled this year
- A scalable conferencing tool that could replace big physical conferences e.g. CES Google IO etc
- A tool that could replicate the networking and community aspects of physical events
- Making conferencing more fun via software and leveraging technology to better improve the experience - e.g. live translation from speakers, click to subscribe after a talk, better and more effective networking (e.g. Hopin)
-Market need for a sustainable and efficient solution to attending events and on a bigger scale — running a global workforce more flexibly
Reshifting global focus...
Once the current emergency has passed, legislators will focus on establishing more robust rules related to outbreak preparedness and response, including how supplies are stockpiled and how tests are made available. Centralized disease tracking and health records are also likely to get a boost as lawmakers prioritize public health over lingering privacy concerns (PitchBook, 2 days ago).
Afterthought... (not in email)
I am, by nature, stubbornly optimistic and will be on the lookout for that unforeseen positive that is usually buried deep in tough times ... what's that proverb, "necessity being the mother of innovation?"... Anyway, I've already witnessed some amazing humans in my own circle band together during this time of crisis.
Signing off with an elbow-bump... stay safe out there, people!