Naima Camara (Senior Research Analyst, European SMB and Start-up Program)

The ripple effects of COVID-19 are already being felt by the global start-up community. COVID-19 is first and foremost a human tragedy, the consequences have ricocheted into our work and personal lives to a level that would have been unimaginable just six weeks ago. What began for start-ups with the cancellation of a few key events — Mobile World Congress (MWC), The Next Web (TNW), Slush — has descended into an existential crisis.

Responding to Investment Changes

Start-ups typically have a 12- to 18-month runway before seeking external investment, so those that were fundraising pre-crisis will be starting to run out of cash. As early as March 5, global VC firm Sequoia Capital released a statement describing COVID-19 as the “black swan of 2020,” painting a picture of turbulence ahead and urging founders to make “fast and decisive adjustments to changing circumstances.” If we think of a “black swan” as an extremely rare event with severe consequences that has significant ramifications for the economy, then that is pretty much spot on.

We’ve seen VCs pull term sheets and investment deals collapse. If we look at China, the first country hit by the pandemic, Chinese VC deals have contracted between 50% and 57% since the onset of the crisis between January and February. If that happens globally for two months, $28 billion will go missing in 2020 (The Impact of COVID-19 on Global Start-Up Ecosystems). Start-ups and scale-ups are a crucial engine for generating jobs, but they face the same questions as enterprise: should they cut costs or slash jobs to weather the storm?

Government Support in Europe

The government support in Europe has been heartening. Denmark is covering 75% of salaries for companies that do not cut staff and Germany is covering 60% of new salaries reduced to part-time. The U.K. has revealed £20 million in grants for start-ups to work on projects that are helping to deliver tools for critical industries hard hit by the crisis. France has allocated €4bn in funding for start-ups affected by the coronavirus pandemic including a partnership with Bpifrance who are allocating up to €80 million to de-risk private investment. These initiatives are crucial for keeping innovation afloat. But if this goes on for much longer, this will not go far enough to protect some of the start-ups that have emerged in the past five years.

It’s Not All Doom and Gloom

Though we have never seen a pandemic of this scale, the start-up ecosystem has weathered many a storm. The dot-com bubble and the Great Recession found start-ups that pivoted and reshaped their business models coming out the other side stronger. External funding may come to a grinding halt at the peak of this crisis and valuations will come down, but there will be more funding after the crisis ends.

How Start-Ups Are Supporting Europe’s Coronavirus Efforts

The strength of the health tech space in Europe has been extremely impactful. We are increasingly seeing governments turn to innovators for the answers to some of the challenges during the crisis. In the U.K., Babylon Health created a symptom tracking app for COVID-19 to enable users to complete a short questionnaire and understand where to escalate to. Iceland-based Sidekick Health has built a digital platform for everyone in Iceland who suspects they may have COVID-19. Users can assess symptoms with a doctor, then be monitored every 12 hours. Doctolib made its teleconsultation platform freely available to all doctors in France. Qoorio in Lithuania built a social support platform which connects individuals looking for solutions to various problems to build up a COVID-19 support community.

It’s not just health tech either. There are some excellent examples of #CoronaKindness throughout the start-up community. Organizations have come together to solve challenges for a growing societal need. MiiMOSA, a crowdfunding platform for food and agriculture, is collaborating with Geev, a donations platform, and Phenix, a food waste app, to deliver meals to hospitals and care givers.

When Sidekick Health CEO Tryggvi Thorgeirsson was asked about his collaboration with the Icelandic government in the wake of COVID-19, he said, “I feel like this can accelerate the adoption of digital health by one or two years … Clinicians and authorities have been dragging their feet a little bit, and now they need this. Everyone is running fast and learning how best to adopt digital tools and implement them into healthcare.”

What’s Next?

Over the coming months we will see some technologies adopted at a faster rate as a crisis of this magnitude forces us to rethink the way we function as a society. Start-ups will be at the forefront of generating the much-needed innovation during and after the crisis.

For more information, please contact Naima Camara or drop your details in the form on the top right.

If you want to know more about how COVID-19 will affect the technology landscape, see more resources here.