If you’re interested in the startup space, you’ve probably heard the general claim that investors are tightening their wallets in the wake of COVID-19. But do you have the data to see just how and where COVID-19 has affected the startup ecosystem?
Pitching a just-built MVP, a bare-bones proof of concept, or even just an idea, is what pre-seed startups generally have to do if they find themselves short of funds. Usually, they pitch to friends or family, as well as angel investors and incubators or accelerators. The extreme risk of these ideas, combined with the current risk-averse environment and the limited resources from any individual investor, means that pre-seed startups are the ones who are most likely to see deals dry up during the crisis.
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As a college student, most of the startups my peers are building are at the pre-seed stage. After COVID-19 kept everyone indoors, there was a surge of sentiment among many college students to do or build something. However, many students who have ideas in mind want to first gauge demand and the possibility of getting support and funding, especially in the current startup climate. So I went to Crunchbase.com to sort through some data and find if there were any trends for startups actually getting the funds.
What’s getting funded
A total of 681 pre-seed raises were announced over a course of five months, beginning from March 1st. As expected, this is a significant decline from the 1,474 raises during the same period last year (a 54% decrease YoY), compared to the 25% decrease in deals for late-stage startups.
The top three labels for funded startups were AI, Healthcare, and Mobile. Most of these categories are ones that have generally endured before and after COVID-19 when comparing YoY, while a few may have gotten a small proportional increase due to the new normal while other categories have wavered. The mentions of each label are sized proportionally in the visual.
For context, I’ve also included a six-year chart starting from 2015 of deal percentages for the top labels. Among the top 6 categories, the two that had positive YoY percentage growth were Healthcare (7% increase) and Mobile (13% increase); the rest were downward trending, with Fintech (35% decrease) and E-Commerce (32% decrease) as the ones with the most drastic downturns.
A large portion of healthcare companies at all stages are either pivoting or creating new products to address COVID-19. The opportunities and problems they aim to tackle range from directly developing medical equipment/testing to solving the need for remote health services and mitigation of spread.
On the other hand, companies raising funds in the mobile space include those targeting mobile payments, digital health/wellness, e-commerce, and gaming. These are generally addressing consumer-driven demand for digital and personal solutions to move in-person activities online, such as offering at-home fitness in the absence of gyms, telehealth as an alternative to visiting the doctor, and digital entertainment to pass the time while indoors.
Where are Funded Startups Located
Based solely on listed Crunchbase data (excluding China), the top countries being funded are, in order, the U.S., U.K, and India, shown in the interactive graph. However, China has been increasingly active in the VC space after its initial COVID-19 outbreak. According to Pitchbook, 66 VC deals were recorded in the week of March 28th alone for China — an all-time high for 2020 at that time. This is also a sign that the VC industry can mount a quick recovery in other countries affected by the coronavirus.
The U.S. is the country with the most deals by far, accounting for 32% of the total announced pre-seed raises with the highest volume of deals in California, New York, and Texas respectively. You can find the full interactive graph here.
Who’s Making the Checks
The top (disclosed) investors, who have invested in five or more startups since March 1st, make up 22% of the total deals and are all incubators/accelerators. These include Techstars hubs in various locations, Antler, and Y Combinator.
Antler has more or less remained steady (from 24 to 21 investments, a 12.5% YoY decrease) — they had previously announced a $500K “COVID-19 Call” initiative in April to invest in up to five startups globally, which likely helped with dealflow.
Techstars did have its own COVID-19 initiative in partnership with Differential Ventures, although Techstars’ part for the initiative was their Innovation Bootcamp, while the checks came from Differential Ventures.
Interestingly, while deals with Techstars have sharply decreased by 85% from 175 to 27 YoY, Y Combinator’s deals increased 225% from 8 to 26 YoY. This is likely due to Y Combinator’s initiative in March (the earliest of the three accelerators) to fast-track promising COVID-19 startups with immediate funding to help with the crisis.
There is also a significant chunk (36%) of the total listed deals with undisclosed investors, which are likely to be private raises by friends and family. Individual angel investors and some early-stage VCs have also invested in many of the startups among the rest of the list.
This data gives a brief overview of what, where, and who is getting funded and is a general pointer towards what is needed during this time.
One particular opportunity that I see stems from what will become a pressing issue once campuses welcome (some) college students back for the fall. With COVID-19 affecting an alarmingly high number of colleges, even when campuses haven’t even officially opened yet, students may not physically attend either due to preference or to necessity.
This opportunity falls into the larger trend of moving activities online, similar to concepts like at-home fitness and telehealth. Existing solutions for socializing online, from what I’m hearing from my peers, are not enough to keep students from feeling isolated and detached from the college community experience that we were all expecting for four years. Students need to figure out ways to connect with each other as a community despite the high possibility of either completely remote or part in-person, part online campuses. The people who would know how to best solve this problem to the satisfaction of students, of course, are the students themselves.
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