The State of Startups

Lately, I’ve been often asked how startups are handling COVID-19. Based on my conversations with GAN Accelerators, GAN Corporate Partners, GSSN Studios, and the startups GAN Ventures has invested in, here is how startups seem to be faring in this season.

When It Comes To Raising Money

Startups who are fundraising fall into one of three categories —

• 15% of startups are easily raising money because their product or service is relevant and needed in this COVID-19 season (for example, GAN Ventures has recently invested in industries such as telemedicine, outdoor recreation, and gaming).
• 65% of startups are in a holding pattern either because they just completed a fundraising round, or they are doing fine without raising and prefer not to raise in a season when average valuations tend to be this low.
• 20% of startups can’t raise money right now because investors are doubling down on their existing portfolios or are focused on startups who are finding new growth in this season.

As you can see, most startups (85%) aren’t raising right now. If I think about the GAN Ventures portfolio, for instance, most of the startups have a good runway from recent investments, or they’re conserving cash because it’s not the best time to raise money. For instance, as you can see below, the number of investments made is decreasing in this season, yet the dollar amount per investment round is either flat or slightly increasing right now, depending on the type of investment round.

My advice: If you can raise money now and actually need the money, do it. Why? Because you don’t know how much longer this period will last. But, only raise money if you find that the terms are decent. I’m starting to hear about predatory investors making their way around because they realize that some startups are desperate in this season.

When It Comes to Generating Revenue

For most companies, generating revenue will be difficult during this time. Yet, China’s high-tech sector is up 12% since the beginning of 2020.

Source: BCG Consulting Group Town Hall (March 25, 2020)

For those in the tech startup world, revenues are probably staying where they were before the crisis took place. Meaning, I’m not seeing many tech startups experience huge revenue swings either way yet, except in cases where the business is providing a particularly relevant and useful tool. Examples of this are telemedicine platforms, online work and video conferencing, and e-commerce (check out J.P. Morgan’s research on this topic). Businesses in sectors like these are seeing an upswing in revenue because they are providing important services for the age of coronavirus.

My advice: The world has changed, so our jobs must change. Continue to call on your current customers to ask them what they’re working on now, and adjust your company goals to fit your customers’ new COVID-19 responsibilities. Most companies I’m talking to and hearing about are iterating their current business model in big and small ways to remain relevant and meet their customers’ needs. I wrote more about doing that here.

When It Comes to Keeping a Business Alive

As of today, we’re only seeing a small number of startups go out of business. That’s because global governments are providing support for startups, and early-stage companies have enough cash. And, in some cases, those startups are generating more cash than they had before (as discussed above).

At the same time, many companies that were struggling before the COVID-19 pandemic are winding down. As one founder recently shared with me, “COVID-19 gave me permission to shut down my company.” We’re seeing this in about 5% of the companies we work with. Winding down says nothing about the worth and value of the founder and leadership, sometimes it’s just the best decision for the business.

For most companies, the pandemic has continued the trends of what was already happening.

My advice: Even though you’re tired, it’s vital that you build a pipeline of potential investors and customers. Now is not the time to stop seeking investors and selling to customers.

When It Comes to Staying Mentally and Emotionally Healthy

Founders’ emotional and mental health is concerning to me in this season. The founder personality is one that is used to ups and downs — in fact, 94% of founders report having experienced depression, anxiety, or other mental health challenges.

Yet, this season brings an onslaught of new problems and unknowns. Founders — and everyone else — are facing pressures and anxiety like never before. Almost half of Americans say that the coronavirus has negatively affected their mental health. Emotional distress hotlines and online therapy services are reporting record-high use. Constant anxiety can lead us to have a high level of the hormone cortisol which ultimately harms our bodies.

My advice: Recognize and anticipate stress. When your brain starts going to a place where you know your body will start to experience stress, keep it in check. And, try to get eight hours of sleep a night, watch your intake of the news, exercise, and do something to help others. All these activities will help decrease your cortisol level.

It’s important for all of us to do what we can to stay healthy in this stress-inducing time of unknowns. A business can only thrive if the people behind the business are thriving.