What Does Covid Mean for Start Up Eco System?

A year ago, it was estimated that the “global startup economy” created nearly $3 trillion in economic value between 2016 and 2018. Now, billions of dollars of that economic value may be leaking away, likely by the day. Today, the global pandemic is already affecting startup ecosystems. The biggest impact has been in China, since COVID-19 hit there first. In the short period from November-December 2019 to January-February 2020, venture investing fell off a cliff in China. Just since the beginning of this year, Chinese venture investing has dropped by over 50% relative to the rest of the world. If other parts of the world experience decline of similar magnitude, “$28 billion in startup investment will go missing” this year alone. That will mean more layoffs than have occurred already in many startup hotspots. Already, according since the end of January, tech and internet companies in Europe have lost almost €400 billion in total. These numbers are staggering. Across Asia, we may be seeing additional effects. Corporate venture investors piled into late-stage funding rounds in recent years, driving up valuations. Some of those investors now appear to be selling their startup stakes at discounts. If Startup Genome’s analysis is an indication, we could see similar moves in the United States and Europe. In 2019, nearly four in 10 corporate venture capital deals globally were in North America, virtually the same share as Asia. In 2008 and 2009, corporate venture investors pulled back more sharply, and earlier, than others. Venture-backed startups represent only a fraction of what constitutes a vibrant startup ecosystem. Tech startups that don’t have VC money (which is most of them), trying to build their companies on cash flow, face serious shortfalls. In every region, there will be plenty of potential high-growth companies who don’t attract venture capital but who are important job creators. Their potential trajectories will be stunted by the current crisis. Small businesses that are not growth-oriented—but no less important for the ecosystem—are already hurting because of forced closures and falling sales.

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