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Start-ups: How will Coronavirus affect your business?

April 2020

Start-ups: How will Coronavirus affect your business?

The Coronavirus crisis has meant that many small businesses have been forced to cease trading on a record scale. My previous article (found here) outlined some of the emergency steps the Government has taken to help businesses to manage issues arising during this difficult time.

Understandably, start-up founders will be worried about the impact of the crisis on their business, both in the short-medium term and the longer term. This article will focus specifically on what the impact of the COVID-19 crisis will be on start-ups, the light at the end of the tunnel and how we can help your business grow in the post-Coronavirus landscape.

Impact of the Crisis

By now, many businesses will be feeling the impact of the Coronavirus crisis on their businesses. The reality of the crisis means that, unless you are a biotech start-up working on a vaccine for Coronavirus, your company will most likely be negatively impacted, with certain industries being hit harder than others. The government has taken steps to assist established businesses and the self-employed, many of which I outlined in my previous article, but there have been no equivalent steps taken to assist start-ups.

Businesses in the hospitality, leisure and retail industries are amongst those hit hardest. Many, if not all, of these businesses, have been forced to close their physical premises due to government guidelines and whilst some of these businesses have been able to take advantage of the business rates relief on commercial premises and the furlough provisions for employees, the reality of the current lockdown situation is that these measures are just a drop in the ocean in terms of economic relief. Online, many retail businesses (aside from supermarkets) have seen sales drop drastically, with people becoming more frugal and their supply chains disrupted due to factories closing all over the world.

Co-working space start-ups and communities, an area that was one thriving to incubate innovative talent, also faces a huge economic fallout. Drastically reduced memberships to co-working spaces have left start-ups such as Huckletree and TechHub facing insolvency. Whilst the government has provided relief on business rates, this currently only applies to businesses in the hospitality and leisure industry. Larger co-working space companies, such as WeWork, have also fallen foul to the effects of home-working, with WeWork having to close at least six locations in the USA and one in London so far.

Whilst the government has introduced the Coronavirus Business Interruption Loan Scheme (CBILS), companies will have to already be eligible for a standard loan to be eligible for the CBILS. For many start-ups, who are valued based on their future potential growth, this will mean they are not eligible.

The silver lining

It’s wrong to say that during a crisis such as this there are winners. But there will be some start-up industries who come out of the current situation in a better position than those mentioned above. In the tech industry, for example, whilst a few businesses have admitted that their short-term plan is merely to survive the crisis, several of tech start-ups are agile enough to adapt to the new global environment. Biotech start-ups such as BenevolentAI and Healx are working tirelessly to fast track a vaccine to bring to the market, and medical transport companies such as SkyCell are being tasked with sending medication around the world. The major boost for these tech companies is that they are not reliant on consumer spending. Their investors understand that patience is required, and money is needed for R&D to build these companies up to make innovative breakthroughs, and in the current crisis, everyone wants to be first in the race for a vaccine.

Trading FinTechs’ also stand to make a gain through this crisis. The uncertainty surrounding the current COVID-19 crisis breeds volatility in the market, and this is only good news for trading companies, at least in the short term. Online retail trading apps have reported that there has been a boom in volumes of trades for those who have assessed the risk to their capital involved, as retail traders have attempted to take advantage of the dip in the market. As long as their platforms can hold up to huge numbers of trades being made over the course of this period, they will at least make a short term gain. However, if the market continues its decline over a long period, it remains to be seen how much of a gain they will make.

The current COVID-19 crisis may seem apocalyptic for many start-ups. But, the silver lining for all industries is that it will eventually end. This may seem an obvious statement to make, but it can be easy to lose sight of that fact in the grips of a crisis. Those start-ups who make it through this will not only have survived one of the most challenging stress-tests their company is likely to face, but they will also be primed for investment, and entrepreneurs and investors alike will be looking for the next unicorn. Our team at Lawrence Stephens is committed to helping your business grow, and with the experience, we have in assisting our clients with crowdfunding and angel investing, we are well placed to not only help you through the lockdown period but also to hit the ground running when the lockdown period is over.