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impact of covid-19 on the nz startup ecosystem

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Kiwi startups are unsurprisingly feeling the strain of the Covid-19 impacts but are continuing to soldier on, according to our recent Kindrik Partners survey.

who responded

Of our respondents, 61.4% were small startups with 1-10 employees. A further third (34.1%) were medium-sized with 11-50 employees, with the remaining 4.5% having over 50 employees.

We received feedback from startups operating in a wide variety of sectors. These industries included:

  • Fintech
  • Travel
  • Health
  • Housing
  • Marketplaces and platforms
  • Media & Digital Marketing
  • Software and developer tools
  • Energy
  • Engineering
  • Agriculture / Aquaculture
  • Education
  • Artificial Intelligence
  • Foodtech / Retail

impact on revenue

The startup ecosystem has been hit almost universally, with over 90% of those surveyed being negatively impacted in some way. 3 in 10 founders report they have been heavily or severely hit by the outbreak.

Responses to “Has your business been negatively impacted by the coronavirus outbreak?”

industry observations

The hardest hit verticals – those that reported that they had been ‘heavily’ or ‘severely’ affected – were marketplace & platforms, software & developer tools, and foodtech and retail. We were not surprised to see retail on the list, although clearly during lockdown some F&B businesses have done well.

There were also sectors facing real difficulty that we didn’t necessarily anticipate, namely, health and biotech. Of course, this is a broad sector, with startups in the space often taking longer to get traction and attract investment compared to your average SaaS company.

unexpected observations

We also acknowledge, as was pointed out by one respondent, that we did not make space for those companies who are benefiting from this global event. The surge in popularity of remote tools like Zoom, Slack, and others show that startups enabling connection and business-as-usual while social distancing can benefit immensely.

In fact, Startup Genome’s worldwide survey of startups reports that 1 out of every 10 startups are in industries experiencing growth.  

dollars lost in anticipated revenue

When it comes to revenue, 45.5% of our respondents anticipated less than $200k in lost revenue, with around a third estimating annual losses of at least 40% (with some much worse). This is unsurprising, but still concerning to see. Many of these businesses will need to rapidly cut costs or raise new capital in the next 3 to 6 months – probably both – just to survive.

Responses to “How much potential revenue have you lost or do you think you’ll lose in 2020? (in NZD)”

Responses to “What is that loss of revenue as a percentage of your entire expected revenue?”

impact on fundraising activities

  • 34.2% of our respondents reported that they are raising funds.
  • 65.8% of our respondents reported that they are not currently raising funds.

Of the companies raising capital, 45% are experiencing delays but for 55% it’s business as usual. This reflects our own experience of seeing some cap raising deal flow in the New Zealand market, albeit a lot less.

Two-thirds of the startups who replied are not raising money. Some of these businesses may have raised in the last 6 months, giving them a period of runway to continue running their business.

Lee Bagshaw, a partner in our corporate team, says, “We’ve seen capital raising for Kiwi startups slow down in recent weeks. We suspect investors will prioritise support for their existing portfolio rather than look at new opportunities for the foreseeable future. Aside from difficult conversations around valuation, investors will want to understand what the post-Covid business looks like, not just how will it survive the crisis – it could be materially different.”

(Read our related articles on fundraising during the covid-19 crisis and bridge financing for startups.)

impact on other growth activities

hiring plans

We also asked companies about other expansion plans. A healthy 45.2% of startups have reported they are not cancelling their hiring plans, which is great to see. This shows a healthy optimism and drive to grow. It also means good news for jobseekers.

There could be pain to come for New Zealand’s ecosystem however. The government’s wage subsidy scheme may currently be acting as a lifeline for some start-ups in terms of staff retention.

Startup Genome’s report paints a less rosy picture for startup hiring – since the beginning of the crisis, 74% of startups have had to terminate full-time employees. Their report finds that 39% of all startups surveyed had to lay off 20% or more of their staff, and 26% had to let go 60% of employees or more.

market and product launches

There remains a determination about expansion plans. 53.9% of respondents have reported that they are not cutting back on market launch or product launches due to Covid-19. In other words, those who have a strategy for post-Covid are pushing on.

how long do we expect this to last?

Responses to “How long do you expect the impact of this pandemic to last?”

Kiwi founders are taking a long-term view on the impacts of Covid-19. More than 75% of founders think that the economic impact for them will last between one to two years. On a global economic level, we expect this clearly will play out for much longer. However, as in previous economic downturns, some tech startups have thrived and new businesses emerged. We expect that to occur again, but sadly there will be some casualties. This view probably informs the perspective of NZ founders to forge ahead with expansion and product development plans, since the alternative – to wait two years until this all blows over – isn’t viable.

what comes next

This is a once in a lifetime (hopefully) event for the NZ (and global) economy. Our startup ecosystem will need to be resilient to come out the other side, which will require ongoing support from early stage investors.

We expect the startups who responded to the survey to broadly fall into 4 categories.

  • those effectively on hold until this is over, and survival is the only strategy – for example those in the travel or events space – whose revenue has significantly diminished. Their ability to survive could be dependent on when they last raised capital and having a strategy for the other side of Covid-19
  • those who may need to pivot – for example, where customer acquisition has fallen and the business needs a new or adjusted business model. This can work, particularly if they have a good customer base who may support a slightly different product, and the team can quickly transition to it
  • those who are not materially affected – some startups we speak to have lost in some areas but gained in others. Overall, revenue may be negative but not materially. The threat to these companies is really just runway and do they need to raise capital to grow
  • the winners – businesses that are thriving, for example, healthtech, online collaboration, certain e-commerce. We suspect these are a tiny minority in the NZ ecosystem.

Assessing which category your startup falls into will be key for founders.

Finally, one thing the survey did support is the theory that there remains a not-insignificant amount of resilience and optimism throughout all this. We hope this Kiwi attitude will see them through these extraordinary times.

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