Taking a leap of faith: Starting up in the age of COVID19
Fewer, Bigger, Better Investments
Between 23rd March and 23rd April 2019, 176 new investments into UK start-ups were closed, worth a total of £495 million. In the same period in 2020, there were 112 deals made worth £661 million. This represents a fall of around 37% in terms of numbers but an increase of 34% in terms of value. Bigger investments spread within smaller numbers of recipients.
Every crisis is an opportunity
Despite the turmoil associated with COVID-19, there is still momentum in the start-up space, albeit in slightly reduced numbers compared to pre-COVID. Perhaps one of the reasons may be the often quoted aphorism that “when the going gets tough, the tough get going” and that times of crisis create fertile mind space for innovation and white space for the brave to jump into:
“In the midst of every crisis, lies great opportunity” Albert Einstein
Iconic, successful and long-lasting brands such as AirBnB (2008), Disney (1929), Electronic Arts (1982), Fedex (1970), GE (1880s), Groupon (2008), HP (1929), IBM (1911), Microsoft (1970s) and WhatsApp (2009) all launched into or off the back of recessionary conditions. Apple too have shown the value of bullishness in times of downturn: the iPod launched during the 2001 recession and the launch of the iPhone 3GS helped the company to buck the 2009 recession with some of the best financial results in its history at that time. Starbucks opened its first stores outside Seattle in 1987 and went public with its initial public offering in 1992, both times of recession. Google began sales of search-engine ads in 2000 as the dot-com bubble was bursting, causing major stock market crash.
Looking back at our most recent recession from a presentation I gave back in 2009, there were multiple opportunities that brands had identified and were busy exploiting:
- McDonalds planned to open 1,000 stores that year
- Subway had its best year to date in 2008
- US Lottery sales increased amid the recession
- Apple reached 1 Bn “app” downloads in 9 months
- Cadbury announced very strong sales growth
- Private label brands and frozen foods were on the rise
- Sales of camping equipment rose sharply
- Sales of condoms, sex toys and lingerie increased
Time for a leap of faith?
As with previous recessions, despite the gloom, there are still opportunities out there, for example:
- Online learning platforms have seen unprecedented interest (link).
- Use of videoconferencing software is surging with Zoom seeing a 20-fold jump in use (link).
- Online grocery shopping is up by more than a quarter (link).
- Sales of bikes are up with significant stock shortages (link).
- Streaming services have added 4.6m new subscribers in lockdown (link).
- The hygiene industry has seen unprecedented growth due to infection concerns (link).
- Fashion retailer Asos has announced that it will repay cash to Government claimed for furloughed workers as it saw sales rise during lockdown (link).
Current start-up opportunities are a mix of old and new
COVID is diversifying the range of start-up activity. To the usual range of “SectorTech” start-ups we can now add new COVIDTech opportunities. Here are some sectors, both old and new, that seem to be enjoying significant traction at the moment:
Health is obviously a key concern for consumers right now and they are open for new solutions to tackle problems in creative ways without physical interactions and without over-burdening their healthcare systems:
- Donut Robotics: This Japanese start-up has designed smart face masks that connect to phones via bluetooth.
- Apiject: This UK start-up has developed BFS prefilled syringe to improve how healthcare professionals inject medicines and vaccines, with ultra-low cost, single-use safety, and rapid scalability.
- Babylon Health: while not a new start-up, Babylon is looking to capitalise on the growth of telemedicine by launching in the US.
The world of work has undergone radical transformation. As employers look to get workforces back into shared workspaces, they will have to ensure their safety:
- BeeSafe: This Dutch start-up helps companies to respect social distancing rules in their offices.
- Glimpse Analytics: This Indian retail analytics start-up has repurposed its AI device that uses existing CCTV cameras in stores or offices to identify people not wearing masks or violating social distancing norms.
As the world strives to emerge from lockdown, start-ups are addressing our need to keep our social distance from one another:
- Architecture Discipline has designed the sChoker, a necklace that uses thermal sensors to detect people nearby and alerts the wearer of close contact
- EGOpro Active Tag is a social-distancing device that uses radio technology to sense the distance between devices. It flashes, vibrates, and beeps when it comes within two metres of another tag, informing wearers that they are straying too close to other people
As the world moves back into crowded situations, start-ups are addressing our need to go about our business while touching as few surfaces as possible or to avoid transferring the virus from surfaces to themselves:
- FOCCT: A small and easy to carry tool for opening doors and pressing elevators.
- Immutouch: A smart wristband that vibrates when the user touches their face
- Pulse: A 3D-printed pendant necklace from NASA’s Jet Propulsion Laboratory that helps to reduce the spread of the coronavirus by warning people when they are about to touch their face.
In summary, there is still opportunity for start-up’s to make a their mark during times of difficulty as some of the most successful businesses of the last decade have demonstrated. Here are a few tips for success during this time:
- Tap into fundamental human needs: Consumers right now have little time or money for the trivial or unnecessary so get back to basics by ensuring your offering meets at least one of the basic human needs: Health and Wellbeing; Trust, Security and Safety; Maximisation and Value; Efficiency and Convenience; Belonging; Connection and Fellowship; Experiences; or Sustainability
- Better, faster, cheaper, more distanced, healthier: As ever, start-ups need an almost fanatical level of focus on their USP: Why should customers pick you and not the other guy?
- Acknowledge the challenging environment: Existing fledgling businesses are finding the current climate very difficult to navigate. Lower than expected revenues are putting pressure on their runways and many are having to firefight – renegotiating rents, stopping/slowing hires, cutting back on online advertising. Many are small, without the broad range of skillsets (outside of their core competencies) needed to run a business and are therefore desperate for support and advice, both financial injections but also expertise and empathy.
- Seek help wherever you can: Don’t be too proud to seek out financial, practical and emotional support. For example, the ReStimulate platform connects socially-conscious impact funders with projects combatting COVID. Start-up accelerator Creative Destruction Lab has added a new COVID-focused program for start-ups.
- Pause for breath: Before taking the leap, take time to consider. While times of crisis have historically been good launch platforms for some brands, the pandemic recession is different to any other we’ve seen, certainly in terms of its savage impact but also because the recovery pathway is so unclear. So, entrepreneur beware, as the normal rules may not apply.
This article was written by Nick Chiarelli, Head of Trends, Unlimited