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 second 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.
Having raised $8.6bn venture capital in 2019, the healthtech and wellness technology sector is poised to experience a surge in demand amid the coronavirus outbreak, according to the report.
Mental health startups, for example, have seen a rise in demand amid widespread anxiety related to the pandemic. Apps in this sector were already flourishing before Covid-19, downloads of the five most popular ‘mindfulness’ apps surged 85% in 2018, according to The Economist.
Mobility tech suffers
The mobility sector faces significant near-term disruption global lockdowns adds to pressure on the ride-hailing industry, which had already suffered a 55.9% decline in investment in 2019, according to Pitchbook.
Stay-at-home orders are also disrupting e-scooters and e-bikes too. Micromobility leaders Bird and Lime have suspended operations in cities across the US and Europe, with the latter experiencing daily revenue decline of 69% by March 21, according to Bloomberg.
Widespread restaurant closures may encourage further venture capital interest across the food delivery ecosystem, particularly technologies that improve the efficiency and capabilities of delivery.
Online grocery and food delivery services have witnessed unprecedented demand as consumers are told to stay at home and self-isolate. “While demand for delivery could recede after the recession, we expect the market will expand permanently as more consumers become accustomed to food delivery”, says the Pitchbook report.
Internet of Things issues
The historical high failure rate of IoT projects, such as implementation issues, means that less than 20% of industrial companies have adopted IoT across their organisation, according to a Bain survey. The covid-19 crisis is likely to keep this number low.
Remote patient monitoring devices are helping hospitals free up resources, while also reducing the transmission of the virus by maintaining social distancing. Leading medical device suppliers Medtronic have invested venture capital into remote patient monitoring startups, and the mass deployment of such devices could lead to a longer-term use of the technology.
Digital and mobile payments should benefit from germ-conscious consumers in the US increasingly adopting mobile payments with biometric authorisation, according to Pitchbook.
Robo-advisors and digital brokerages face their first significant test on how they perform during a downturn. Robinhood, the Silicon Valley stock brokerage app suffered three significant outages in March, leaving millions of users unable to trade while the prices of their stocks plummeted.
Business shutdowns and increased unemployment will likely drive substantial credit defaults and losses for fintech companies focused on small business and consumer lending. The tightened securitisation market means fewer customers meet the criteria, and so providers will see significantly reduced loan volume.
Insurance companies are likely to suffer cash-flow problems in the short term due to the rise in claims and early payouts for life insurance, compounded by the drop in interest rates which adds risk to their business models, but the industry will likely prove durable in the longer term.
“The nature of this health crisis is likely to spur interest in risk analytics technologies that incorporate disease and outbreak data to help underwrite policies,” the report states.
Startups such as Metabiota help insurers model infectious disease outbreaks with real-time surveillance data and could drive huge benefits to insurers early in an occurrence.
In the US, the fallout of the Covid-19 crisis in the US could bolster efforts to establish a public insurance option, posing a competitive risk to private health insurers as the shortcomings in the US healthcare system have been highlighted during the outbreak.
The first feature of the mini-series can be found at this link.