Four out of every 10 startups will die in the next three months if they don’t raise additional funds, according to a report by research firm Startup Genome that looked into the impact of COVID-19 on startup ecosystems around the globe.
The survey polled 1,070 respondents in over 50 countries, the San Francisco, California based research firm said.
The study revealed that 41 percent of startups have three months or fewer of runway — defined as the amount of cash they have divided by how much they burn monthly.
Of startups that had a term sheet with investors before the onset of the crisis, nearly 20% have had the term sheet pulled by the investor, and 53% have seen the process slow down significantly or have faced an unresponsive lead investor, the report said. Only 28% have either had the process continue normally or secured the funds. A term sheet is a a non-binding agreement defining the terms of the investment.
Since the start of the global pandemic, which has killed some 172,000 people and sent economies into lockdown to halt the spread of the virus, some 74 percent of startups have had to terminate full-time employees. By continent, North America was home to the largest percentage of startups that have had to terminate employees (84 percent), followed by Europe (67 percent) and then Asia (59 percent).
Three out of every four startups saw their revenues decline since the beginning of the crisis, and 16% of startups saw their revenue drop by more than 80%. A major reason for these drops stem from the fact that the crisis has hurt industries these startups serve. To curb the damage, startups have reduced their expenses since December, with more than one out of every 10 firms cutting costs by over 60%.
A minority of firms however, some 12 percent, have seen their revenue grow by 10 percent or more since the beginning of the crisis, and one out of every 10 startups are in industries that are actually experiencing growth. Business to consumer startups are about three times more likely to be in industries experiencing growth, compared to business to business startups, the report said.
Working from home has not been a problem for startups — indeed, unlike many traditional businesses, 96 percent of startups can continue working during lockdowns.
Some startup founders and executives (38%) said they are not helped and do not expect to be helped by policy relief measures related to the crisis. Others, 16% of the respondents, said they are not currently supported but expect to be helped by policy measures soon, while the remaining 46% are currently receiving assistance.
The four most helpful policy responses for their businesses would be in grants to preserve company liquidity (29 percent of respondents), instruments to boost investment (18 percent), support to protect employees, such as payroll supplementation grants (17 percent), and loans to preserve company liquidity (12 percent), the respondents said.