Startups with innovative ideas or resources to face the pandemic could benefit from them. Raising funds is difficult enough in a healthy economic context, so what happens when global stock markets crash?
Some investors will become more cautious when it comes to investing, at least for the time being. Although this does not mean that they will stop. In other words: investments will not stop, but investors will need a longer time to get to know and examine the project, which is not bad.
Turbulent times can also become an opportunity. As markets and circumstances change, new challenges to be solved and opportunities for new companies to grow their businesses are created.
Challenging times reveal the true characters of business leaders. “Although for a new startup raising funds is definitely more difficult in these market conditions, we also believe the best companies are set up during complex environments,” said Diane Fraiman, Managing Director at Voyager Capital.
On another note, John Spindler, CEO of London-based Capital Enterprise, affirms that very early-stage companies might be fine as “they can put off starting for three months — their only cost is themselves.” One of these founders stated, “I was about to start reaching out to investors after developing my product for over four years. “I guess right now it’s best to focus on finishing the product and in a month or so try to find a partner again, even if it causes a delay.”
Nonetheless, it may seem that very early-stage startups with less bank’s liquidity have a more tough time to meet and win potential customers and to start showing traction. It is also likely that the next financing round is affected for the same reason.
“CEOs should consider a range of revenue and expenditure scenarios. For instance, in the best scenario, moderate spending cuts are made. This way, revenues are not severely affected. On the other hand, if revenues drastically drop or does not grow, and expenditure remains at the original plan’s level, it could lead to a considerably shorter trajectory,” says Gil Dibner, partner at Angular Ventures.
It is also an opportunity for the few lucky ones who have experienced an increased interest in their services due to the pandemic. “Startups with innovative ideas or tools to face the pandemic could be strengthened.” Some initiatives have already emerged to finance this type of project.
The most relevant one is headed by one of the best-known investors in the United States: Sam Altman, CEO of the artificial intelligence research laboratory OpenAI and former President of the Y Combinator incubator. Altman has invested in many technology companies during his career, including some as well-known as Airbnb, Stripe, Reddit, Pinterest or Change.org.
What kind of startups spark interest?
Altman intends to financially endorse companies that can offer the following types of products or services:
- Those that can produce a lot of ventilators, masks, or gowns very quickly.
- Those that develop new effective medication against the virus, or screen existing drugs for effectiveness. As well as those with novel approaches to vaccines.
- Novel therapeutics that the big pharma companies are unlikely to work on.
“I’m trying to fund startups/projects helping with COVID-19, because it’s basically the one thing I know how to do that can help. I think we will soon have enough testing capacity, so now I’d like to start funding more startups working on [those projects],” said Altman in a blog post.
Just one day after the announcement, Altman has prompted half a thousand projects to sign up. Although he has not promised to fund all projects himself, he has requested entrepreneurs to complete a spreadsheet that can be accessed and consulted by any interested investor.
Similarly, the public sector is also contributing with this cause. The European Commission has been more specific and has created a fund of 164 million dollars for startups and small companies that offer technology and innovation for treatment, testing, monitoring, and other aspects in the fight against COVID-19. The fund is not aimed towards a specific business type, but it is exclusively assigned to search for ways to face the virus.
Some startups that have been able to make a profit within this global crisis context are the following:
Siilo, a digital platform designed by Jone Bruggeman, serves as a communication link among medical professionals. Bruggeman affirms that, “Venture Capitalists are interested in how our business is growing because of the pandemic.”
He has stated that Siilo has experienced “an increase in entry requests since the outbreak, even in regions where we are not dominant. “Also, sales cycles have shortened from 18 months to two weeks since last week. Bruggeman believes he will be offered more favorable deadlines, which would not have been granted in a different scenario.
Another case is O2TODAY, a face mask company that was struggling to take off until the new coronavirus arrived. In 2016, the idea of creating masks to avoid air pollution was born. It was already ahead of its time. More specifically, three or five years ahead of market interest. The company’s founder believed that someday the demand for this product would arise. So, he was getting ready for it in the meantime. The entrepreneur took some steps to keep the company idle until the timing was right.