Why Startups are About to Suffer from the Coronavirus
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Why Startups are About to Suffer from the Coronavirus

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The economic impact of the coronavirus is well underway. Financial markets are experiencing significant turmoil. Now, one of the world’s most successful Venture Capital (VC) firms says startups are next.


Why the Coronavirus will Hurt Startups

When most people think of VC firms in Silicon Valley, they think of Sequoia Capital. With over fifty years of experience, Sequoia is the firm with the foresight to back Apple, Google, and Airbnb.

What does the firm’s foresight suggest about the Coronavirus? Well, nothing good.

The firm recently distributed a letter to its founders and CEOs providing guidance on surviving the coronavirus. The virus has spread across the globe, with over 134,000 confirmed cases thus far. It has also spread across industries — and will surely affect startups, says Sequoia.

In the letter, Sequoia referred to the coronavirus as the ‘black swan’ of 2020. All business assumptions made by startups, should be questioned in this trying time, the firm wrote.

In fact, the global economy could face a significant disruption. But those hit the hardest could be startups, with no funding in the foreseeable future, and plenty of turbulence on the horizon.

Sequoia wrote,

“Having weathered every business downturn for nearly fifty years, we’ve learned an important lesson — nobody ever regrets making fast and decisive adjustments to changing circumstances. In downturns, revenue and cash levels always fall faster than expenses. In some ways, business mirrors biology. As Darwin surmised, those who survive ‘are not the strongest or the most intelligent, but the most adaptable to change’.”

More specifically, the firm warned its founders of “potentially painful future consequences”. In order combat such negative outcomes, Sequoia says to consider operating with less employees, cut down on expenses, increase marketing efforts, and prepare for a tough road for additional funding.

The Coronavirus vs Startups

The coronavirus struck as the fundraising world was beginning to integrate emerging technology. The Security Token Offering (STO) incorporates the benefits of distributed ledger technology (DLT) with regulated fundraising, including private equity.

The overwhelming majority of blockchain-powered offerings feature a bad reputation, clouded by regulatory ambiguity or disapproval in general. This largely involves the Initial Coin Offering, or ICO. When it comes to the STO however, one recent study showed how it has been used to raise nearly $1 billion.

With the ongoing impact of the coronavirus, further developments in the security token space are likely to slow down. The virus’s impact to financial markets has already been significant.

The US stock market, for example, has suffered considerable losses. The Dow Jones Industrial Average saw its worst day today since 1987. Yet when we look at how previous epidemics have impacted the stock market, we can find a breath of reassurance.

The question becomes how the coronavirus will compare to those past epidemics. With Italy locked up and on the verge of a financial bailout, the situation is far from ideal.

Now, even startups — the early-stage, visionary, forward-looking companies — are facing a significant hurdle.

How significantly do you think the coronavirus will impact startups? We want to know what you think in the comments section below.


Image courtesy of Thrive Global.

March 13, 2020

About Author

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Tim Fries Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions (IoT).