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News Article

Startups Afloat Despite Pandemic

By José Escobedo | Wed, 04/29/2020 - 16:18

A large number of companies have had to reassess their business plans during this crisis and startups are no exception. Startup Genome reports that 41 percent of global startups have less than three months of cash. This situation has worried many entrepreneurs and it signals that the startup sector is hanging by a thread.

Startup Genome CEO J.F. Gauthier and Chief Innovation Officer Arnobio Morelix wrote a report that was based on a survey conducted by the company. Close to 1,100 participants from over 50 countries took part in the survey that ran from March 25 to April 17. Results provide some grim numbers. For example, since the beginning of this pandemic, 74 percent of startups have had to lay off full-time employees while three out of four startups saw their sales decrease. An interesting fact is that when the share of startups that had to terminate full-time employees is divided by the top three continents in terms of startup activity, North America has the biggest share of companies reducing headcount (84 percent), followed by Europe (67 percent) and Asia (59 percent).

The COVID-19 pandemic has also affected startups’ total revenue. According to Startup Genome, 74 percent of startups have seen their revenues decline since the beginning of the crisis. While most companies have seen a modest revenue decrease, 16 percent of startups saw their revenue drop by more than 80 percent. The reason for revenue drop is the effect the pandemic has had on other industries startups serve. Three out of every four startups work in industries severely affected by the COVID-19 pandemic, reports the survey.

The Startup Genome study covers aspects such as the total number of startups that are likely to disappear if left without support. It also reports on companies that have layoff plans and cost reduction strategies. On a positive note, the survey also includes some figures on startups that could benefit from this crisis.

In Mexico, startups have also experienced challenging times due to the pandemic. For example, capital venture firm Mountain Nazca announced this week its divestment from startups Creze and Kavak. After five months, the firm has finalized its exit from both startups, allowing MX$1.2 million (US$50.4 million) to be distributed among its investors. Mountain Nazca, led by Jaime Zunzunegui and Héctor Sepúlveda, said this move allowed the firm to keep its participation in companies such as Luuna, Urbvan and Miroculus.

Despite challenging times, startup entrepreneurs are aware that their mindset and attitude towards business must change in order to succeed. Contxto reported that in a webinar hosted by the company’s Managing Partner Bedy Yang, Santiago Zavala, Partner at 500 Startups LatAm, talked about learning more on how Latin American entrepreneurs are putting up a fight against COVID-19. “It is important now more than ever that we have startups and entrepreneurs in Latin America. We are going to need all that startups’ ecosystem and energy to readapt these industries,” said Zavala, who is connected with entrepreneurs in Mexico, Argentina, Colombia, Chile and Peru. Zavala thinks that the scalability of products and employees from Latin America is one trend that may increase in the future, reports Contxto.

Those entrepreneurs who are selling their service solutions in dollars will present a profitable opportunity, especially due to all the currency devaluations and shifts many countries have experienced, according to Zavala. He also noted that for those that have matured sufficiently to scale and sell their solutions in dollars, can now enjoy a profitable opportunity. In Mexico´s case, the peso has seen a 26 percent devaluation against the dollar during 1Q20.

A small number of companies have actually seen their business grow already. Startup Genome reports that 12 percent of startups have actually seen their revenue increase by 10 percent or more since the start of the pandemic. Such is the case for food delivery service app Didi Food. Last week, the company announced it will further expand its delivery service platform in Mexico due to recent high demand. According to the company, the delivery service will now be operating in Toluca, Aguascalientes, Saltillo, Torreon and Chihuahua. Not only will it deliver food, but users will now be able to order from pharmacies and convenience stores.

Prior to COVID-19, the startup was only available in Mexico City, Guadalajara and Monterrey. Maria Pia Lindley, Operations Lead at Didi Food North & South in Mexico, said the company is increasing its service to help others deal with the coronavirus pandemic. “Now more than ever we need to channel our efforts towards generating alternative income sources and bringing the benefits of tech to more people and businesses. We at Didi Food carry the great responsibility to extend our support so that more business can keep their operations afloat and more people can become self-employed through deliveries,” said Lindley.

The data used in this article was sourced from:  
Venturebeat.com, startupgenome.com, contxto,
Photo by:   Unsplash
José Escobedo José Escobedo Senior Editorial Manager