As the world economy continues to falter due to the COVID-19 pandemic, thousands of businesses and millions of jobs are on the line. On the other side, layoffs and salary cuts have started happening in many tech companies to date.
Recently in a survey, conducted by Support Our Startups, around 194 Belgian startups revealed that in four weeks time coronavirus has created financial uncertainty for around 79% of the young digital companies. Also, the number of startups that report a runway from 0 to 6 months has tripled as well. Further, around 62% of startups need bridge financing due to the impact of COVID-19.
Earlier this month, Support Our Startups launched a call for financial backing in the form of state guarantees. Around April 20th, 2020, over 980 startups (almost half of the digital startups in Belgium) signed the call.
Support Our Startups surveyed these startups and scaleups over the last few days and quickly received 194 responses.
“Taking the results of this survey into account, a sense of urgency is required by all the stakeholders involved”, warns entrepreneurship fellow at Sirris and startup specialist Omar Mohout. “Being short on cash is a natural disposition for our startups & scaleups, but such a dramatic fallout can set our ecosystem 5 to 10 years back.”
Impact on revenue and fundraising
Startups and scaleups are built from scratch and have not been able to create a financial buffer in recent years. Due to a lack of assets, these companies are often not ‘bankable’, which makes them extra vulnerable. Support Our Startups, therefore, enquired about the impact of COVID-19 on these two aspects.
78,2% of the startups experienced a significant revenue loss in March (16,1% report a drop of 25 to 50%; 14,9% a drop of 50 to 75; 23,6% saw their revenue decrease with over 75%). When asked about revenue expectations for 2020, 20,3% expect a decline of 10 to 25%, 29,9% of startups think it will be between 25 and 50%; 22% project a loss of between 50 and 75%.
Of the startups and scaleups that had started fundraising when the COVID-19 crisis began, 75,4% report a negative impact. This ranges from the lengthening of the fundraising timeline (24,6%), the need to postpone (13%) to investors saying they are not willing to make new investments due to the current circumstances (6,5%) or investors pulling out after a signed term sheet (1,4%).
Omar Mohout: “Startups and scaleups, our engines for innovation and growth, are exposed to the perfect storm due to COVID-19: revenue streams are drying up, they are considered to be not bankable and their fundraising slows down. The results are dramatic.”
Saving jobs with minimal salary cuts
Startups are important job creators in the economy of tomorrow. The companies that participated in the survey have a staff of up to 10 (70,4%), 10 to 25 (20,1%), 25-50 (7,4%), 50 to 150 (2,2%). As staff is an important cost factor, the startups were asked about their intentions to lay off staff now or in the near future.
Realising that the war on talent will continue to rage on many fronts and exploring other options to extend their runway, 74,9% indicate they have no intention to do this if it’s not absolutely necessary to survive, and only 4,8% expect they need to cut their staff by 50% or more.
Asked about the impact on people’s salary, 60,3% said they might consider salary cuts between 0 and 15%; 14,7% think about a salary cut between 15 and 30%; 8,1% consider a salary cut of 30 to 50% and 16,9% consider a salary cut of more than 50%.
Omar Mohout says,
“I am impressed by the leadership by example in these companies, founders and executives are the first ones to cut their salaries significantly.”
Bridge financing
In the survey, it also becomes clear that bridge financing is an important way for startups and scaleups to get through the COVID-19 crisis. 61,9% of the companies state they are currently looking for this, realising they are excluded from a large part of the crisis measures for Belgian companies that have been put in place already.
The ideal proposal!
Considering the above survey, SupportOurStartups.be has proposed a straightforward, more detailed and complementary set of measures that is beneficial to both early-stage and more mature startups:
Liquidity bridge funding for viable startups
Government loan guarantee scheme that allows for startups to obtain 75% of their 6- to 12-month liquidity bridge funding through a (90% guaranteed) medium-term bank loan, if the startup is deemed to be viable pre-Corona.
Public-private co-investment for larger start-ups
Specific public-private co-investment scheme that allows for larger, revenue-generating startups to obtain a 1-to-1 matched equity and/or a convertible public co-investment, with a call option to acquire the government co-investment post-crisis.
Expanded tax shelter for start-ups & scale-ups
Expanded tax shelter scheme to make private investment in startups more attractive, by combining an increased tax reduction of 60% on investments with increased limits per startup (€500.000) and per person (€200.000).
“Entrepreneurs must ensure that they have enough runway and sufficient cash preservation mechanisms to get them through the end of the year”, concludes managing partner Olivier de Duve of Inventures Investment Partners. “I believe that the short-term liquidity guarantees requested from the government are reasonable and will help the start-up community ride out the storm. They need a bridge to the after-crisis, not a bailout.”
SupportOurStartups is backed by over 980 Belgian startups and organizations such as imec.istart, Limburg Startup, The Faktory, Birdhouse, Hangar K, TechMag, Startup Vie, [email protected], Itinera Institute, The Harbour, Wixly, Inventures, Fintech Belgium, Reseau Entreprendre Bruxelles, Spreds, Betech, UCM, EURACTIV Media Network.
Main image credits: bekulnis/Shutterstock
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