Report: Four in 10 startups face ‘red zone’ – 3 months of funding left

SAN FRANCISCO – Global venture capital funding has dropped by 20 percent since the onset of the crisis in December 2019. The drop, however, is far from evenly distributed, says Startup Genome, a San Francisco-based innovation policy advisory and research firm, with the US faring better than others. But startups are increasingly at risk.

It’s just one of several highlights from its fourth installment in a series examining the impact of COVID-19 on the global startup ecosystems.

The US has so far experienced only relatively small changes in startup funding since December: a drop of less than 10 percent by March.

“However, when we take into account the seasonality pattern from previous years, with January consistently showing more activity than December, the small drop between December and the beginning of the year means that every month of the first quarter of 2020 in the U.S. saw over 15 percent fewer deals than the same months in 2019,” the report noted.

Startup warning sign

Four out of every 10 startups globally are in what Startup Genome calls the “red zone” — they have three months or fewer of cash runway. For startups that have raised Series A or later rounds, 34 percent have less than 6 months worth of cash — a danger zone in the current situation where fundraising is difficult.

“The double whammy of the drop in demand (three out of every four startups have had their revenue decline) with the capital crunch startups are in makes this global drop in venture capital particularly worrisome,” Startup Genome said in its overview.

As WRAL TechWire has reported, startups across North Carolina are not immune from the cash shortfall with some making layoffs and others relying on federal Paycheck Protection Plan loans to help meet expenses.

However, funding is available. More than 20 NC ventures have closed on investment deals since April 1.

How other countries are doing

China, the first country hit by the coronavirus crisis, had a drop of over 50 percent in funding relatively to the rest of the world in January and February. Nonetheless, China has seen a rebound in March, although with numbers still lower than pre-crisis levels, the report noted.

Asian ecosystems, excluding China, also saw a major drop beginning in January, with no rebound as of March.

European ecosystems, meanwhile, only saw drops in funding activity starting in March — the last continent to see a pronounced impact on tech deals.