74% of Startups Have Trimmed Staff, 65% Have Less Than 6 Months of Cash

Three quarters of startups have laid off full-time employees due to COVID-19, according to a Startup Genome survey of 45 countries. And most of them have just a few months of cash reserves.

And startups shouldn’t expect new cash any time soon.

A startup's office

Photo by Slidebean on Unsplash

If we can take China as an example, venture deals dropped 57% there in February at the peak of the country’s shutdown. Even worse, that’s probably still higher than it would have been, thanks to a lag in deal flow that was likely already in progress when the Coronavirus pandemic hit.

“Silicon Valley venture capitalists are pausing for at least a couple of months,” the report says. “Few VCs have enough dry powder to save most of their startups.”

More than a quarter of startups have had to let 60% or more of their employees go, which is devastating for companies of any size, and particularly small startups where everyone wears multiple hats already. Lyft, a very late-stage ride-sharing startup that’s been hard-hit by the shutdown, announced about 1,000 job cuts yesterday. Its competitor Uber is considering laying off about 5,000 employees.

But for some, the downturn has been positive.

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Startup Genome’s report says that 12% of startups have seen their revenue increase by 10% or more since COVID-19 started. Those are generally in industries that are seeing growth, like telemedicine, education, fintech and banking, video platforms, e-commerce, gaming, and streaming media.

The Startup Genome is calling for government resources to help startups survive.

“Governments stand to make money by injecting six months worth of cash in startups,” the report says. “If we assume a negative 10% return on the equity, the cost per job saved will be 41% lower for startups than for small and medium-sized enterprises.”

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The rationale is beyond saving jobs. It’s saving the job-creators of the future.

And, the report says, if our economy and indeed our society is all going digital ... startups are born digital and are building the very tools we’ll need to survive and thrive in whatever new normal emerges.

One very real question:

Will a society that has grown accustomed to hearing about startups employees’ big salaries and cushy perks — dog-walking services while working, anyone? — and that are mainly based in the big coastal cities, be willing to bail out what many might see as privileged and coddled millennials?

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