As a result of COVID-19, start-up funding across the globe is expected to take an enormous amount of hit as already evidenced by the slowing economic growth rate. The pandemic has significantly disrupted the supply, healthcare and travel chains, wreaking havoc on global financial markets. For many growing companies right now, alternative finance will be the ultimate game-changer.
How Funding has been Affected Before
The coronavirus outbreak has raised questions on the flow of funds, with many start-ups already worried about their capacity to survive the lack of funding. Here, let’s have a look at the most recent outbreaks and how they affected financial investments.
Severe Acute Respiratory Syndrome (SARS)
SARS-CoV-2 is a type of coronavirus and was reported to have spread across 26 countries in 2003. Over 8,000 people were affected and less than 1000 lives claimed. Just like the COVID-19, SARS originated from China, in the province of Guangdong. The World Health Organisation (WHO) thought it had also been an animal virus. In 2004, it was fully contained but had hampered private funding by 29 percent.
The first record of the ZIKA virus was first recorded in 2007, and the second one in 2013 in the pacific. The latest case was in 2015 reported in Brazil, spreading rapidly to most parts of South America and the world. In February 2015, WHO declared the virus a global epidemic, calling it off in the last half of 2016. During this time, private funding had recorded a low of 25 percent.
The COVID-19 Effect
In 2008 when the world had entered the Great Recession, a Silicon Valley venture capital, Sequoia Capital, advised the US citizens to spend every dollar as if it was the last. While COVID-19 may not lead the world to a recession, it will certainly cause significant disruptions to the economy.
The extent of its severity has only become more apparent since it was first reported in December 2019. The number of cases reported to date has surged, with the virus affecting over 1, 440, 400 people globally, and claiming 82,979 victims as reported by WHO as of 8th April 2020. Health experts predict the numbers to soar as a result of the high rates of infections.
In 2016, soon after WHO recalled ZIKA as a global emergency, business funding started to gain momentum. In the same breath, financing is expected to see a rise as soon as countries contain coronavirus in the next months.
Such are the times businesses should focus on alternative finance, such as the dependence of convertible notes. This is whereby a company running low on cash looks out for funds from an investor. This money is then converted into shares in the next fundraise.
Revenue-based finance is the other alternative. The benefit here is that if your business revenue is slow, the repayments do the same, making it a better alternative to the traditional model of funding, especially during a crisis such as this.
At such times, public sectors, as well as the government, should step up. The innovative UK, for instance, a body involved in funding start-ups, has taken up the duty of paying their arrears. Also, in the UK, development tax credits are given to start-ups as soon as they spend the money.
The French government, following the pandemic, has likewise announced measures to be taken to support businesses. Start-ups affected by COVID-19 are advised to request for the extension of their business tax and social security payments. Bbifrance, in this regard, has been directed to give loans to start-ups from the public bank and extend their repayments.
The effects of this pandemic may seem tragic and unexpected, but for start-ups, it could be just another opportunity to be creative and strategic. For many, it will not be to succeed or compete but to survive. Good examples of businesses that thrived during the Great Recession crisis include Pinterest, Twilio, Square, Airbnb, Uber, WhatsApp, and Slack, which all started between 2008 and 2009.
What Funded Start-ups Should Do
If yours is a start-up or a small business that depends on funding, here are some of the things you could to reduce the burden.
Examine your Sales Forecast
You must be realistic in your sales projections and not just guess estimates. This is the only way you can devise smart ways of selling most of your products, particularly online at subsidized prices. Do you need to look for new markets by altering your brand? For instance, if you sell in the most affected countries such as China and Italy, how can you tweak that product to address local needs? This may mean leveraging a partnership and launching an aggressive online marketing campaign.
Manage your Cash
Every business, both large and small, knows there is one rule that must be followed to survive in eCommerce. Save for the tough times. The tough times are now. How much cash on hand do you have? This is the amount that should support your business for at least six months. If you do not have these funds, look for strategic ways to cut on expenses and handle your business differently to increase sales.
Use Fewer Funds in Marketing but be Creative
The chances are, when you started, you depended on word of mouth and organic social media as your key networks for reaching your audience. Well, now is the time to go back to that avenue. It is about being creative with your messaging and your expenses. Leverage marketing tactics that cost less but reach your targeted group of consumers.
Manage Employee Expenses
Some of your employee expenses may have to be brought to a halt. That includes events and travel expenses related to your business. You may also need to cut back on extra expenses on rent by encouraging your employees to work from home. If you were planning to hire more staff, consider freelancers or contractors. This is also the time to negotiate with your landlord and suppliers.
Start-ups that survived the 2008 crisis were only creative at managing their funds. As more demands arise around the virus affecting funding, it is time to rethink alternative financing. COVID-19 is also creating a need for self-tracking and reporting, giving your business the chance to meet the growing demand.