The economic havoc caused by Covid-19 is particularly challenging for start-up companies as their avenues of funding dry up and their fledgling business models come under pressure.
“Venture capital-backed start-ups are particularly vulnerable to recessions and economic slowdowns,” write analysts Paul Condra and Aria Nikkhoui in a recent study by Pitchbook, which tracks venture investments. “In addition to the overall drop in demand, they are unlikely to have significant revenue.”
In the first of two features assessing the impact of Covid-19 on the start-up industry, we look at Pitchbook’s report – the Ripple Effects of Covid-19 on Emerging Technologies published on March 26 – to try and determine which start-up sectors are likely to be least like affected and most resilient to the crisis.
Artificial intelligence’s ability to streamline workforces is a long-term trend that is likely to be accelerated due to enterprise cost-cutting led by the global economic slowdown. Manufacturing and physical retail have been hit particularly hard by the virus, and enterprises in China have increased their inquiries into AI-enabled robotics capabilities, according to Pitchbook.
AI has been deployed in the detection, diagnosis and treatment of Covid-19. Huawei and Alibaba, for example, have developed AI-powered diagnostics based on CT scan data which claims to reduce the time needed to analyse Covid-19 scan data to mere seconds.
Supply chain technology
Supply chain disruptions caused by the crisis have highlighted the need for technologies that can mitigate the impact of economic shocks and ensure business continuity. The crisis could, therefore, catalyse long-term investment in emerging supply chain technologies as companies seek to diversify their value chains, the study argues.
Retail and medical supply chains, for example, have come under pressure as consumer demand for household items and visits to physicians increase. Warehousing start-ups, the study points out, can add flexibility and scalability for small businesses and shipping intermediaries to maintain steady operational performance during periods of fluctuating inventory demand.
Cloudtech and DevOps
As more companies move software services to the cloud, investors are betting on start-ups that provide operational support for servers and data centres. The need for organisations to develop work-from-home capabilities may further drive demand for DevOps collaboration and communications tools, according to the report.
Companies in the development and operations (DevOps) market raised $6.2bn in venture capital funding in 2019 across 360 deals, according to Pitchbook. Although a recession may tighten budgets, the Pitchbook analysts label DevOps as “one of the more insulated industries from the near-term supply and demand shocks affecting the global economy”.
Software as a service (Saas) providers are ramping up giveaways to help existing customers and attract new users; Microsoft Teams, Zoom, LogMein are listed as among companies that have made certain products free since the start of the crisis.
Information security (Infosec) spend is likely to be affected by the low growth in IT investment in 2020, with Pitchbook forecasting low or flat growth during the calendar year. International Data Corporation has reduced its 2020 IT spending forecast from 5% in January to 1% in March, and information security spend is likely to decrease accordingly.
But as the number employees working at home skyrockets, many organisations could adopt advanced anti-phishing capabilities offered by start-ups including Ironscales, Avanan and Inky, according to Pitchbook.