Coronavirus Delivers Massive Shock to Startup Scene

By James Grumann

The damage being inflicted by the Coronavirus is widespread, and part of it delivering a crushing blow to entrepreneurial startups.

Venture capital company Sequoia Capital has raised a red flag, telling some of the firms it owns that they need to batten down the hatches for foul economic weather.

For startups, the super-charged Trump economy has morphed into dark clouds and largely unknown dangers ahead.

“Any remotely speculative company that needs to borrow now is out of luck. Only one company, Del Monte Foods, tried to raise money in the junk-bond market last week, but it withdrew, according to CreditSights. No new junk-bond deals have been sold in the U.S. since March 4,” Crain’s New York Business is reporting.

“Any company carrying a lot of debt has the potential to go bust,” said Murray Gunn, head of global research at Elliot Wave International, a financial analysis firm,” it added. “In the last week or so, everyone has gotten a lesson in the importance of clean hands. For startups and other companies facing questions about their viability, clean balance sheets are paramount—as well as customers who stick with you when the going gets tough.”

But it’s not all doom and gloom. Rays of light continue to break through the storm clouds.

There are startup investors who are “so uncertain about the current economic environment that they are hesitating to give us their forecasts on the record (this never happens),” said techcrunch.com. “But others tell us they see the huge market gyrations and all the downstream effects of the novel coronavirus creating a great environment for long-term bets in the coming weeks.”

The reason, the publication continued, involves the shifting level of competition. “Because with other investors departing the market, deal terms are getting better, the competition is less keen, [many investors] can do more due diligence and there are a lot of companies being built that have great growth prospects and are going to survive this global pandemic,” Danny Crichton detailed on Extra Crunch after calling around to his sources. “It’s the VC equivalent of buy (actually) low and sell high,” techcrunch.com added.

Veteran executive and entrepreneur Scot Wingo recently told wraltechwire.com that in the face of the pandemic he recommends “preparing for the worst and hoping for the best. It doesn’t cost anything to have a set of plans – maybe 2-3 and have them look at a light and heavy impact and what you would do.”