Kiwi startups are unsurprisingly feeling the strain of the Covid-19 impacts but are continuing to soldier on, according to our recent Simmonds Stewart survey.
Of our respondents, 61.4% were small startups with 1-10 employees. A further third (34.1%) were medium-sized with 11-50 employees, with the remaining 4.5% having over 50 employees.
We received feedback from startups operating in a wide variety of sectors. These industries included:
The startup ecosystem has been hit almost universally, with over 90% of those surveyed being negatively impacted in some way. 3 in 10 founders report they have been heavily or severely hit by the outbreak.
The hardest hit verticals – those that reported that they had been ‘heavily’ or ‘severely’ affected – were marketplace & platforms, software & developer tools, and foodtech and retail. We were not surprised to see retail on the list, although clearly during lockdown some F&B businesses have done well.
There were also sectors facing real difficulty that we didn’t necessarily anticipate, namely, health and biotech. Of course, this is a broad sector, with startups in the space often taking longer to get traction and attract investment compared to your average SaaS company.
We also acknowledge, as was pointed out by one respondent, that we did not make space for those companies who are benefiting from this global event. The surge in popularity of remote tools like Zoom, Slack, and others show that startups enabling connection and business-as-usual while social distancing can benefit immensely.
When it comes to revenue, 45.5% of our respondents anticipated less than $200k in lost revenue, with around a third estimating annual losses of at least 40% (with some much worse). This is unsurprising, but still concerning to see. Many of these businesses will need to rapidly cut costs or raise new capital in the next 3 to 6 months – probably both – just to survive.
Of the companies raising capital, 45% are experiencing delays but for 55% it’s business as usual. This reflects our own experience of seeing some cap raising deal flow in the New Zealand market, albeit a lot less.
Two-thirds of the startups who replied are not raising money. Some of these businesses may have raised in the last 6 months, giving them a period of runway to continue running their business.
Lee Bagshaw, a partner in our corporate team, says, “We’ve seen capital raising for Kiwi startups slow down in recent weeks. We suspect investors will prioritise support for their existing portfolio rather than look at new opportunities for the foreseeable future. Aside from difficult conversations around valuation, investors will want to understand what the post-Covid business looks like, not just how will it survive the crisis – it could be materially different.”
We also asked companies about other expansion plans. A healthy 45.2% of startups have reported they are not cancelling their hiring plans, which is great to see. This shows a healthy optimism and drive to grow. It also means good news for jobseekers.
There could be pain to come for New Zealand’s ecosystem however. The government’s wage subsidy scheme may currently be acting as a lifeline for some start-ups in terms of staff retention.
Startup Genome’s report paints a less rosy picture for startup hiring – since the beginning of the crisis, 74% of startups have had to terminate full-time employees. Their report finds that 39% of all startups surveyed had to lay off 20% or more of their staff, and 26% had to let go 60% of employees or more.
There remains a determination about expansion plans. 53.9% of respondents have reported that they are not cutting back on market launch or product launches due to Covid-19. In other words, those who have a strategy for post-Covid are pushing on.
Kiwi founders are taking a long-term view on the impacts of Covid-19. More than 75% of founders think that the economic impact for them will last between one to two years. On a global economic level, we expect this clearly will play out for much longer. However, as in previous economic downturns, some tech startups have thrived and new businesses emerged. We expect that to occur again, but sadly there will be some casualties. This view probably informs the perspective of NZ founders to forge ahead with expansion and product development plans, since the alternative – to wait two years until this all blows over – isn’t viable.
This is a once in a lifetime (hopefully) event for the NZ (and global) economy. Our startup ecosystem will need to be resilient to come out the other side, which will require ongoing support from early stage investors.
We expect the startups who responded to the survey to broadly fall into 4 categories.
Assessing which category your startup falls into will be key for founders.
Finally, one thing the survey did support is the theory that there remains a not-insignificant amount of resilience and optimism throughout all this. We hope this Kiwi attitude will see them through these extraordinary times.
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