Venture capital (VC) funding for startups has fallen by around 20% since December 2019 as the covid-19 pandemic smashed the global economy, but the impact is unevenly distributed according to new research from Startup Genome.
The California-based analytics firm’s latest report into global startup funding, the first in a series its planning looking at the impact of coronavirus on the sector, found that China was hardest hit first on the investment front, much like the virus. VC funding fell more than 50% in January and February compared to the rest of the world. And while China rebounded in March, the numbers remain below pre-crisis levels. Other Asian ecosystems saw major drops in January and have yet to bounce back.
The US, with a more mature VC market, has only fallen by less than 10% between December and March. Startup Genome said it took into account the seasonality pattern of previous years, with January consistently showing more activity than December, which meant that deals in the US were down by 15% every month in the first quarter of 2020 compared to 2019.
What’s notable is that 2019 was already sluggish compared to 2017 and 2018.
Europe, slow to move in its response to coronavirus, was also the last continent to see an impact on the investment deals going ahead, with the drop beginning to emerge in March with a reduction of 10% compared to December.
Startup Genome’s April survey of startups found that 4 out of every 10 startups globally are in what they call ‘red zone’, with 3 months or less of cash runway and needing to make dramatic changes to their cash flow or raise additional funds to avoid collapse.
For startups that have raised Series A or later rounds, just over a third (34%) have less than 6 months worth of cash.
Startup Genome authors JF Gauthier and Arnobio Morelix said there was a “double whammy” from a drop in demand, with three-quarters of startups reporting they had their revenue decline, alongside the capital crunch, and there is “a risk of a mass extinction event for tech startups”.
“Startups will be key to the economic recovery: they create most of the net new jobs in the economy, and are especially more relevant now as our society becomes increasingly digital,” they said.
“Governments need to act now to support these companies so that their digital innovation and economic recovery capabilities are not decimated. This is especially true for emerging ecosystems — those without the decades of experience and capital pool in places like Silicon Valley.”
The duo warn that the data they’ve gathered isn’t perfect, and there can be a lag between funding action and announcements, which is why they focused on Series A+ rounds, which generally have smaller time lags than Seed rounds.
They say that in the coming weeks and months Startup Genome will continue publishing insights on the impact of the coronavirus crisis on startups.
You can read the latest report here.