Nearly half of startups saw their revenue drop by 40% or more amid COVID-19 pandemic
According to Atlas VPN investigation, 40% of startups saw their revenue drop by 40% or more during the COVID-19 pandemic.
A startup is a company created by an entrepreneur who attempts to develop a profitable and scalable business model. Startups were greatly affected by the reduced demand caused by the COVID-19 crisis.
A research and policy advisory company Startup Genome surveyed representatives from more than 2000 startups globally to discover how the pandemic impacted their business.
Even 18% of new companies saw their revenue plummet from 61% to 99% since the beginning of the crisis. A significant portion, 7% of startups, lost all their customers due to the pandemic.
Decreased revenue is an issue for most startups since they are in a so-called “red zone”. Meaning, they will go bankrupt if they do not raise capital during the next three months, and their revenue stays the same or declines.
Globally, 4 out of 10 startups fall into the category of a red zone, which means that the pandemic is a serious hurdle to them.
To survive, new companies will have to cut expenses, which means that layoffs are inevitable.
Changes in revenue by region
Businesses in different continents were affected to varying extents. Globally, the average startup experienced a decline in revenue of 32%.
Startups in Asia got hit the worst, with an average new project seeing a 39% crash in income. New companies in Africa are a close second in revenue diminishment, with around 36% decline.
North America is close to the global average, with an average new company experiencing a decline of 31% in earnings. South Africa saw a similar decline, with a 32% drop in revenue.
Startups based in Oceania and Europe held up to the pandemic the best. New projects in Europe experienced around 27% drop off in income, while those in Oceania suffered a 25% decline.
Changes in revenue by sector
It turns out that the impact of COVID-19 on startups’ revenue varies greatly depending on the industry the company is in.
Startups that depend on the mobility of the population suffered the worst. On the other hand, since people stay at home, some internet-focused startups did not see that big impact on their earnings.
Not surprisingly, travel and tourism startups were affected by the COVID-19 crisis the most. On average, a startup in this market saw its revenue plummet by 70%.
Beauty and fashion startups experienced a nosedive of 59% in total revenue.
In addition, startups in advanced manufacturing, Medtech & medical devices, transportation & infrastructure, and automotive markets are among the top six sectors that saw the biggest decline in revenue.
In contrast, new projects in the blockchain and crypto industry held up the best, with an average decrease in revenue of 14%. Businesses in this market create products and services related to blockchain technology or cryptocurrencies.
Close behind follows the cybersecurity industry, in which startups’ revenue diminished by around 17% since the start of the pandemic. The cybersecurity industry encompasses technologies designed to protect internal and external networks, computers, and devices from various cyber threats.
Startups in the gaming industry also stood the test of the COVID-19 crisis quite well. On average, a new company in this industry saw a reduction in total gains by 19%.
Findings show that internet-focused companies held up the best during this crisis, which could be explained by the fact that lockdowns forced people to use the internet more often.