Quarantine and lockdown have had an economic impact on small businesses and large corporations alike. However, when it comes to the global start-up scene, the carpet has really been pulled from under these companies’ feet.
Given that they rely mainly on equity investments or convertible notes, they have been affected by the fact that in a downturn, these can turn into debt. The earlier stage the company, the bigger the risk.
Mainland China, which was hit first by coronavirus in December 2019 has, to date, 204 unicorns (start-ups valued above 1 billion USD) and the impact of COVID-19 has been felt heavily by them. Based on the Startup Genome report, venture capital deals in Mainland China decreased by more than 50% in the first two months of 2020, with CNN reporting a venture-capital-investment decrease of 65% year-over-year for Q1 2019 to Q1 2020.
This led to a loss of 28 billion USD funding for Mainland Chinese start-ups alone with its year-over-year 2019 funding decreased already by 50%. It was thought that the rest of the world could well follow suit in the months ahead.
Start-ups and investors alike must adjust to a new situation in which due diligence is switching from offline to online and may take longer than expected given the new market sentiment.