Tech companies at all growth stages are facing capital raising and operating challenges brought about by the global COVID-19 pandemic. A recent CB Insights client briefing explored these novel business pressures.
To add some perspective, an analysis of earnings calls provided by CB Insights showed that the mentions of "layoffs," "furloughs" and "hiring freezes" in earning transcripts are over twice as frequent as compared to earnings transcripts from the 2008 financial crisis. The word "unprecedented" has approximately 2,100 mentions in 2020 earnings reports, compared to about 1,000 in 2008. The term "remote work" and its variations appeared for the first time ever in earnings calls with over 1,600 mentions in 2020 so far.
Global Venture Funding Environment
Global private venture funding had a slight dip in numbers, quarter-over-quarter, with 1,271 transactions completed in the first quarter of 2020, raising $26.4 billion. In 2019, a record $109.7 billion was raised in private venture funding in 6,093 deals worldwide. During the SARS outbreak in 2004, deal volume in the Asian private markets dropped 18%, bouncing back in 2005 by 38%. Similarly, during the Zika virus outbreak in 2016, Latin American funding dipped 49%, recovering 404% following the Zika virus' containment in 2017. While the COVID-19 environment has resulted in various short-term funding pressures for startups, analysts are hopeful 2021 will bring a similar recovery in funding levels.
Source: CB Insights
Opportunities for Startups
Startups have been presented a challenging opportunity to tackle cybersecurity, supply chain, and process automation solutions during the COVID-19 pandemic. As the world has shifted to a remote working setting, phishing and ransomware attacks have increased. Given the pressure to maintain secure virtual-working environments, CB Insights data shows an active private venture deal flow in the cybersecurity sector as startups attempt to fix these vulnerabilities. $2.2 billion was raised in 113 deals in the first quarter for 2020, on par with 2019 levels, which raised $2.5 billion across 179 deals.
The surge in demand for delivered products has added strain to supply chain networks, in addition to presenting public safety and health challenges. Media coverage relating to "supply chain" in association with the virus have increased exponentially from 65 mentions in January 2020 to 1,908 in April 2020, according to CB Insights. Deal volume by these supply chain and logistics tech startups reached a total of 225 deals in the first quarter of 2020, a increase over the 152 deals from the first quarter of 2019. However, funding levels dropped significantly to $3.5 billion from $7.8 billion, quarter-over-quarter.
Startups have also worked to alleviate bottlenecks via robotic process automation ("RPA") for a variety of industries including healthcare and for financial services-specifically companies processing a high number of loan applications relating to the recent U.S. government stimulus package. The RPA sector is a relatively new tech sub-sector, however, an RPA startup has already reached unicorn status. The startup developed "bots" to streamline the loan origination process.
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