San Francisco tech startup founders are accepting tougher funding terms — if they can even get any money — as many announce layoffs, cuts and spending freezes amid the global coronavirus pandemic, according to the Financial Times (FT).
“At least for the short term, gone are the days where it is a founder’s world,” Rachel Proffitt, a partner at the Silicon Valley-based law firm Cooley, told FT in a Friday (May 1) report. “That is going to be a little bit of a stark reality for the current generation of young entrepreneurs.”
Hans Swildens, CEO of Industry Ventures, told the news outlet that roughly 80 percent of venture capital (VC) funding will be at pricing that is “flat” or “down.”
“Most of them are in the market looking for things today, but they’re not feeling like they have to do anything,” Swildens said. “They kind of went from fear of missing out to a more patient stance on investments.”
It is anticipated that over 25 percent of startups will run out of money before there is economic growth in the U.S., research by Silicon Valley Bank indicated, according to FT.
“The reality is that companies will shut down — at a higher rate than what is inherent to this risky industry — and there will be waves of layoffs,” the National Venture Capital Association wrote in a report this week, FT said.
Startups that sustained the crisis — telemedicine, cloud computing, collaboration software — ended up better than most. One example is the design app Figma, which saw its valuation escalate to $2 billion after a recent funding round.
Many small- to medium-sized businesses (SMBs) saw a banner year in 2019, and 2020 was anticipated to be even better. Amid the pandemic, nearly all have been in a battle for survival. Some 5 percent of the SMBs surveyed by PYMNTS reported they are closing their doors for good.