Why the coronavirus pandemic could prove fertile ground for startups
From the dot-com bubble to the 2008 financial crisis, new tech companies often grow out of economic troubles
When most people think of the dot-com bubble, they will remember the thousands of internet companies destroyed before they could even turn a profit. But for a handful of early-90s startups, it marked the turning point for growth into absolute behemoths.
Starting as an online bookseller in 1994, Amazon not only survived the bubble, it began a growth trajectory that’s arguably still going today. Not only is it an e-commerce service for practically every product under the sun, it’s also the parent company of the biggest cloud computing provider in the world. Both those segments of its business have proved invaluable during the coronavirus crisis.
Online shopping has kept us clothed, fed, entertained and, hopefully, as mentally healthy as possible, while cloud computing is finally having its day. The entire technology sector knew what it could do long before the pandemic, but the sudden dependence on remote technologies, data sharing and online business models have spelled that out to almost everyone.
“The current situation is different from crises that have come before,” says OTB Ventures managing partner Adam Niewinski. “It’s uniquely human – and its costs are being felt by businesses and individuals across the globe.
“The economic crisis that’s unfolding, too, is historic. It is the first time that governments, industries and global stakeholders have actively chosen to slow the economy to save lives. That is a fundamentally correct choice, but it’s caused businesses of all types to experience disruption of the sort that has never been seen before and it’s going to change the way they operate in the long-term.”
Problems are the beginnings for solutions and that is how startups are born. The bigger the problem, the bigger the startup eventually becomes, it would seem, as some of the largest tech companies around have come from monumental economic disruptions. Like Amazon and Google in the late 90s, Spotify, Airbnb and Uber all grew out of the 2008 financial crisis, while early on in the pandemic, remote technologies quickly took precedent.
“COVID-19 has had markedly different effects on different sectors,” says Oliver Holle, co-founder and managing partner of VC firm Speedinvest. “Hospitality and travel have been badly hit, but we’ve seen lots of growth and investor attention in other areas, such as remote work, digital education and ehealth.
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“We’re encouraging companies to consider if their unique product or service could also be applied to one of these growth sectors. Some of our portfolio companies have done just that and switched to totally new business models and sectors. As areas like ehealth boom, investors that were cautiously waiting for something to happen are now being far more liberal with their money as they play catch-up.”
The digital health sector was already on something of a roll before the coronavirus. In 2019 alone the industry saw $7.4 billion in investment with $550 million (£435 million) of that going to UK unicorn Babylon Health. The ‘remote GP’ service has been a literal lifeline for thousands during the lockdown and it’s arguably going to be difficult to ditch now that its benefits have been fully realised. This is also the case for doctors who have had a taste of the remote life, with the NHS reportedly sending out over 9,000 laptops during the pandemic.
The easing of lockdown will be a good indication for the real success of video conferencing. While we have got used to talking to friends, family and work colleagues through our computer screens, the desire to go back to the old ways will be quite inviting, naturally. While the NHS has become a giant digital experiment over the last five months, it’s also an organisation that was still using fax machines in 2018.
Startups like Zoom and Pexip saw mass adoption in March. The former enticed users with a free tier, which suggests there will be a sharp drop coming when people go back to attending physical pub quizzes. Pexip, on the other hand, has pulled in a number of high profile clients and successfully debuted on the stock market – via its own service. The firm is on the verge of becoming a unicorn.
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Likewise, British used car startup Cazoo has reached the $1 billion valuation mark, doing so in a record time of just 18 months. The service is an app that uses AI to find used vehicles in your area and gives you the information you need about the car without ever needing to go to a dealer and kick a tire. It also drops it off at your door, adding to the rapidly expanding contactless life that we’ve come accustomed to in lockdown.
Like Amazon, Spotify or Google, common sense suggests the next big thing in technology already exists and the coronavirus has provided it with the perfect use case. Admittedly, there’s a good chance it may be swallowed up by one of the giants that already dominate the tech landscape before it becomes a household name, as is often the case with promising startups. But we could equally end up looking back on this strange time as the moment something special was born.
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