As the rest of the economy sinks under Covid-19, most startups are doing just fine

A man sits in front of five computer monitors showing different displays from a self driving car while a colleague peers over his shoulder.
A man sits in front of five computer monitors showing different displays from a self driving car while a colleague peers over his shoulder.
Image: REUTERS/Alexandria Sage
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While the coronavirus pandemic has ravaged much of the world economy—forcing mass layoffs, government bailouts, and a wave of bankruptcies and business closures—most venture capital-backed startups have skated by entirely unscathed.

To put a precise number on it, 52% of startups have been positively impacted by the pandemic or seen no impact to speak of, according to a working paper from researchers at Harvard, Stanford, the University of Chicago, and the University of British Columbia. The academics surveyed nearly 1,000 venture capitalists—572 in the US and 381 elsewhere—and asked them to rate the health of the startups in their investment portfolios.

Bill Trenchard, a partner at First Round Capital, a venture capital firm in San Francisco, said pandemic disruptions have played right into many of his portfolio companies’ business plans. “Every digital trend we saw developing, whether it was online multiplayer gaming or distributed work or ecommerce, it has all just accelerated,” he said. “Pretty much anyone with a venture backed startup is developing along those trends, and that’s why it’s really been good for them.”

This is not the future many people were predicting for startups back in May, when we reported that 41% of startups were in danger of running out of cash within three months. Funding did slow down—but then it came roaring back, fueled by investors looking for returns wherever they could find them. Their hunger for tech investments has fueled the hottest tech IPO market since the dot-com bubble in 2000, and buoyed cloud computing startup Snowflake to the biggest software IPO ever.

Trenchard said the enthusiasm for investments in public tech companies carried over into the private venture capital market as well. “The capital markets have been hugely rewarding of technology companies,” he said. “If you have a good company, a good product-market fit, and good growth, you can raise money in this environment.”

But it isn’t all roses for startups—there is, of course, the danger the global pandemic will end. Trenchard said many consumers and companies are now investing in technology to adapt to their new reality, but they may ease up when the danger passes. “I wonder if there’s going to be a wave back out once there’s a vaccine and the increase in spending that we’re seeing from coronavirus slows down,” he said.

Still, he said, coronavirus simply accelerated the shift toward remote meetings and distributed work. “Those things are all here to stay,” he said. “I think there probably will be some tapering, but the long term trends are the same, and those things will drive a lot of technology adoption.”