COVID-19 Crisis Likely to Impact Negatively Early-Stage Startup Funding, Investors Say

COVID-19 Crisis Likely to Impact Negatively Early-Stage Startup Funding, Investors Say

by April 13, 2020
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The COVID-19 pandemic will have a negative impact on early-state investing activity in 2020, investors say. This is according to a survey conducted by 500 Startups which found that more than 80% of investors believe the current health crisis is set to be detrimental to startup funding this year.

What type of impact do you think COVID-19 will have on early-stage investing activity in 2020? The Impact of Covid-19 on the Early-Stage Investment Climate, 500 Startups, April 2020

What type of impact do you think COVID-19 will have on early-stage investing activity in 2020? The Impact of Covid-19 on the Early-Stage Investment Climate, 500 Startups, April 2020

The venture capital firm, which surveyed 139 investors to gauge their sentiment on the repercussions of the COVID-19 outbreak, found that 83% of respondents are already seeing the impact of the pandemic on their investment activities and plans. 62% expect the startup and early-stage investing community to feel the impact of COVID-19 for one to two years.

Is the COVID-19 health crisis having an impact on your investment activities or plans? The Impact of Covid-19 on the Early-Stage Investment Climate, 500 Startups, April 2020

Is the COVID-19 health crisis having an impact on your investment activities or plans? The Impact of Covid-19 on the Early-Stage Investment Climate, 500 Startups, April 2020

Though 26% said they will go on with the investment allocation planned prior the outbreak, 16% will reduce that amount by 25 to 50%, and 11% will reduce it by 10 to 25%. 31% are still undecided, the research found.

By how much will your investment allocation to startups change as a result of Covid-19? The Impact of Covid-19 on the Early-Stage Investment Climate, 500 Startups, April 2020

By how much will your investment allocation to startups change as a result of Covid-19? The Impact of Covid-19 on the Early-Stage Investment Climate, 500 Startups, April 2020

The pandemic and its ramifications have also led to increased interest in specific industries affected by the virus, the research found. These include healthcare (47%), remote work solutions (42%), and productivity software (28%).

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Do you have an increased interest in investing in COVID-19 affected industries this year? If so, which ones? The Impact of Covid-19 on the Early-Stage Investment Climate, 500 Startups, April 2020

Do you have an increased interest in investing in COVID-19 affected industries this year? If so, which ones? The Impact of Covid-19 on the Early-Stage Investment Climate, 500 Startups, April 2020

The 500 Startups survey results coincide with other research and analysis, which forecast a difficult year ahead for startups.

According to CB Insights, a market intelligence company, the COVID-19 and the ensuing economic crisis are already having a clear effect on startup funding. In Q1’20, private market funding is projected to reach US$77 billion, representing a 16% decline compared to Q4’19 and a 12% decline compared to Q1’19. The projected decline in Q1’20 will be the second steepest quarterly drop in the past ten years, the company forecasts.

Asian startups, in particular, are expected to be the most affected, with funding set to fall 35% and deal counts set to decline by 40%, it says.

The impact of the pandemic is also being felt in the fintech sector, with deal counts and dollar amounts falling. At the current pace, global fintech funding for Q1’20 will likely reach about US$6 billion, a level not seen since 2017, CB Insights says.

But some segments are more exposed than others to the financial downturn triggered by the COVID-19 crisis, analysts have said, with challenger banks, robo-advisors, and alternative lenders, expected to struggle the most within the next six months. Meanwhile, fintechs in the trading space, infrastructure providers, as well as contactless payments players, will likely see a boost.

But despite short-term pain, the COVID-19 pandemic will create long-term benefits and drive fintech adoption, according to venture firm Finch Capital.

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